Published: February 2025
As the UK tax year comes to a close on 5 April, it’s a good time to start thinking about your financial situation and how you can make the most of the tax allowances and reliefs available. Whether you’re self-employed, a salaried employee or a business owner, the tax year-end is an opportunity to plan ahead and minimise your tax liability. Here are some key things to consider as we approach the end of the tax year.
1. Use Your Allowances Before They Expire
Each tax year comes with various allowances and exemptions that, if not used, expire at the end of the year. Here are some of the most important:
- Personal Allowance: In the 2024/25 tax year, the personal allowance remains at £12,570, meaning you can earn up to this amount without paying income tax. Ensure you don’t miss out on utilising your full allowance.
- ISA Allowance: Individuals can save up to £20,000 in an Individual Savings Account (ISA) tax-free. If you haven’t made full use of your ISA allowance, now is the time to maximise it before 5 April. Also, up to £9,000 can be contributed to a Junior ISA to build savings for children/grandchildren.
- Pension Contributions: Contributions to pensions qualify for tax relief. The annual allowance for pension contributions is £60,000 (subject to specific conditions). If you haven’t used your full allowance, making additional contributions before the year ends could reduce your taxable income for the year.
2. Consider Capital Gains Tax Planning
If you have made capital gains this year or are planning to sell investments, it’s worth considering how much tax you could pay. The first £3,000 of your capital gains are tax-free, but anything over that will be taxed at 24% (18% for basic rate taxpayers). Lower tax rates apply on gains realised before 30 October 2024. Also, be aware that any crystallised losses could be used to offset gains.
If you haven’t yet used up your capital gains tax exemption, consider realising gains before 5 April to ensure you don’t miss out. Alternatively, you could gift assets to your spouse or civil partner to take advantage of their tax-free allowance.
3. Make Charitable Donations
Making charitable donations before 5 April can provide you with tax relief through Gift Aid. When you donate to a registered charity, they can claim back 25p for every £1 you give, and Higher Rate / Additional Rate taxpayers, can claim tax relief on the amounts donated. This could reduce your overall taxable income for the year, potentially bringing you into a lower tax bracket.
Additionally, charitable donations are not subject to Inheritance Tax, which can make them an important part of estate planning.
4. Tax Planning for Self-Employed Individuals and Business Owners
If you’re self-employed or a business owner, the year-end is an important time to review your tax position. Consider the following:
- Maximise Your Allowable Expenses: If you haven’t already, ensure you claim all allowable business expenses to reduce your taxable profit. This includes office supplies, business travel, and any professional services you’ve used.
- Dividends and Salary: For business owners, it’s important to review how you pay yourself. Combining a salary with dividends can be a tax-efficient way to take income. Dividends are taxed at 8.75% for basic rate taxpayers with the next tier being at 33.75% for a higher rate tax-payer. Dividends are an efficient way of extracting remuneration from a limited company.
5. Tax Relief for Investments
If you invest in qualifying businesses through schemes like SEIS (Seed Enterprise Investment Scheme), EIS (Enterprise Investment Scheme), or VCTs (Venture Capital Trust), you may be able to claim substantial tax reliefs. These are higher risk investments and require specialised advice.
6. Plan for Inheritance Tax (IHT)
The end of the tax year is a great time to consider how inheritance tax might affect your estate. The IHT Nil Rate Band is currently set at £325,000, and anything above this may be subject to a 40% tax. In addition, when a home is inherited by your direct descendants, Residential Nil Rates (up to £175,000) could also be available to an Estate. This is a good opportunity to review the available Nil Rate Bands as part of your Estate Planning.
Careful planning can help you take advantage of these exemptions and reduce the amount of IHT due. Consider gifting assets to family members or charities using the annual gift exemptions before the end of the tax year. You can also gift into Trust/s for the benefit of your family. The benefits and tax efficiencies depend on the type of Trust.
7. Review Your Financial Goals
The tax year-end is an excellent opportunity to review your overall financial goals and plans. Have you made the most of your savings and investment opportunities? Are you on track to meet your retirement goals? Review your pension plans, ISAs, and other savings vehicles to ensure that you’re maximising their potential.
Conclusion
The end of the tax year is a crucial time to take stock of your financial position and ensure you’re making the most of available tax reliefs, exemptions, and allowances. A little proactive planning now can reduce your tax bill and set you up for a more financially secure future.
If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.
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Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The Financial Conduct Authority does not regulate estate planning and tax planning.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
