Tax increases have become an all-too-familiar topic in recent years, with landlords and property investors in Kent feeling the financial strain. While the UK’s total tax revenue as a percentage of GDP isn’t the highest globally, it’s currently at its highest level since the early 1980s, hovering around 40% of the economy. The primary sources of tax revenue include income tax, National Insurance contributions (NICs), and value-added tax (VAT).
Following extensive speculation throughout 2024, the Autumn Budget introduced several tax changes that are expected to impact individuals and businesses alike. For landlords and property investors, staying informed and proactive is crucial to minimise tax liabilities in 2025.
Let’s explore six reasons why your tax bill might increase next year and five effective ways to reduce it.
Six Reasons You Might Pay More Tax in 2025
1. Frozen Income Tax and NI Thresholds
The government has frozen income tax and National Insurance thresholds until 2028. As wages increase due to inflation, more people will fall into higher tax brackets, effectively increasing their tax liability.
2. Higher Capital Gains Tax on Investments
The capital gains tax rates for stocks and shares have increased, from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher and additional rate taxpayers. This change, which took effect in October 2024, will have a full-year impact in 2025.
3. End of the Stamp Duty Holiday
The stamp duty threshold, temporarily raised to £250,000 (£425,000 for first-time buyers) in September 2022, will revert to previous levels at the end of March 2025. This change will likely increase costs for property investors.
4. Frozen Inheritance Tax (IHT) Thresholds
Inheritance tax thresholds remain at £325,000 (with the residence nil rate band at £175,000) until 2030. With rising property values in Kent, more estates will fall within the IHT bracket.
5. Council Tax Increases
Council tax bills will rise by up to 4.99% in April 2025. Given the financial pressures faced by local authorities, it’s likely that many will opt for the maximum increase.
6. End of the Alcohol Duty Freeze and Higher Tobacco Taxes
The freeze on alcohol duty ends in February 2025, while cigarette prices have already increased and are likely to rise again in the autumn.
Five Ways to Cut Your Tax Bill in 2025
1. Maximise ISA Contributions
You can invest up to £20,000 annually in a stocks and shares or cash ISA, shielding your investment gains from tax. For those aged 18-39 saving for a first property, a Lifetime ISA (LISA) allows you to save up to £4,000 per year and receive a 25% government bonus.
2. Contribute to Your Pension
Pension contributions are tax-efficient, with tax relief at your highest marginal rate. You can contribute up to £60,000 annually. Even non-taxpayers can receive tax relief on the first £3,600 contributed.
3. Utilise Salary Sacrifice Schemes
Salary sacrifice allows you to allocate a portion of your salary towards benefits such as pensions, childcare vouchers, or cycle-to-work schemes, reducing your taxable income.
4. Make Use of Spouse Exemptions
If you’ve used up your ISA allowance, consider transferring income-generating assets to your spouse. This strategy allows couples to utilise their full tax allowances and potentially reduce their tax liability.
5. Claim the Marriage Allowance
If one spouse is a non-taxpayer and the other is a basic rate taxpayer, the marriage allowance lets the non-taxpayer transfer £1,260 of their personal allowance, reducing the tax bill of the higher-earning spouse.
Stay Proactive and Protect Your Finances
While tax increases seem inevitable, smart planning can help you minimise your liabilities and keep more of your hard-earned money. For Kent landlords and property investors, now is the time to take stock of your finances and explore the best ways to stay tax-efficient.
Need Expert Property Management to Maximise Your Investment Returns? At Lifeboat Lettings, we specialise in helping landlords navigate the complexities of property ownership, from maximising rental yields to staying compliant with tax and legislative changes. Contact us today to find out how we can support your property journey.
Are you ready to navigate the changes coming in 2025? Whether you’re an established property investor or a landlord in Kent seeking to expand your portfolio, The Property Lifeboat is here to support you. Contact us today for expert advice on property management, tax planning, and staying compliant with the latest regulations.
