Make the most of your money before the 2024/2025 tax year ends on 5 April
Our money is hard-earned and precious, so it is understandable that parting with it in the form of taxes isn’t something anyone looks forward to. However, understanding how to plan your finances effectively could significantly affect your financial future.
The UK tax system is complex, and many individuals remain unaware of the assistance and allowances available to them. With the current tax year running until 5 April 2025, there’s still time to optimise your finances. Taking advantage of various tax reliefs and allowances can minimise your tax liabilities and secure your financial wellbeing.
Why personal tax planning matters
Personal tax planning should now be a priority for anyone keen to maximise what they keep from their income or investments. Using proactive measures before the tax year’s end ensures you capitalise on untouched reliefs, exemptions and options to safeguard your financial outlook.
Planning your tax liabilities requires understanding the system thoroughly. By staying informed and taking steps promptly, you can make the most out of available allowances while also considering strategic opportunities for the future, such as improving retirement stability or optimising savings.
Key dates in the UK tax calendar
The current tax year ends on 5 April 2025. This date also marks the closure of your personal earnings cycle for the year, which helps determine your tax band. Understanding your position is critical; it ensures you claim every allowance and relief to which you are entitled.
From 6 April 2025, the following tax year begins. This transition makes the current period the optimal time to review your position, plan for the future and implement efficient strategies for both short-term and long-term financial goals.
Marriage allowance – a simple way to save
Couples can benefit from the Marriage Allowance, which permits one partner to transfer up to £1,260 of their unused Personal Allowance to the other, reducing their tax liability by up to £252. This is often overlooked but can make a significant difference for those who qualify.
Only applicable to married couples or those in registered civil partnerships, this allowance works for situations where one partner earns below the personal threshold, while the other is a basic rate taxpayer. Efficiently sharing allowances can optimise your household finances.
Salary sacrifice for pension contributions
Salary sacrifice schemes, available through many employers, are an efficient way to contribute to your pension while reducing tax and National Insurance contributions (NICs). By agreeing to a reduced salary, your employer pays that deduction directly into your pension scheme, reaping tax benefits while boosting your retirement funds.
Extra advantages can arise as some employers reinvest their NIC savings into your pension. Over time, this method makes it easier to achieve larger contributions while reducing your current tax liabilities.
Versatile ISA strategy
Individual Savings Accounts (ISAs) remain a popular, tax-efficient way to save or invest. Whether through Cash ISAs or Stocks & Shares ISAs, your savings benefit from being sheltered from Income Tax, Capital Gains Tax and Dividend Tax. The annual contribution limit for ISAs currently stands at £20,000.
Specific ISAs, such as the Lifetime ISA, offer a focus on long-term goals like buying your first home or enhancing retirement savings. With a 25% government bonus on contributions of up to £4,000 yearly, they are a powerful tool for younger savers aged 18-40.
Key changes to ISAs in 2024
Recent rule updates in November 2024 make fractional shares within an ISA wrapper tax-efficient, providing new opportunities for savvy investors. Changes also now allow ISA transfers between providers to access better terms, but care is required to ensure limits and tax benefits remain intact.
Flexible ISAs provide another layer of practicality, enabling withdrawals and replacements of funds within the same tax year without impacting your allowance – though this feature is unavailable for Junior and Lifetime ISAs.
Reviewing pensions before the tax year closes
Ensuring you maximise pension contributions is a significant aspect of end-of-year financial planning. Contributions benefit from tax relief, and the current annual allowance is £60,000 gross, though high earners with adjusted incomes over £260,000 will see these allowances tapered.
Planning contributions for minor or adult children and grandchildren can further optimise taxation and wealth strategies. Remember the ‘Carry Forward’ rules to backdate unused allowances from the past three years.
Safeguarding wealth from Inheritance Tax
Inheritance Tax planning remains a critical consideration for families, particularly as thresholds are currently frozen until 5 April 2030. The Residence Nil-Rate Band offers substantial relief when passing property to children or grandchildren, providing up to £1 million of exemptions for married couples.
Recent proposals announced during
the Autumn Budget Statement 2024 include pensions under the Inheritance Tax framework, complicating their efficiency as estate planning tools. Alternatives such as gifting, whole-of-life insurance policies or trust arrangements may prove more beneficial.
Making tax-efficient gifting decisions
Gifts offer another way to reduce taxable estates effectively. Exemptions include wedding gifts, annual allowances of up to £3,000 and contributions to charities or political parties. By utilising these provisions properly, families can reduce inheritance liabilities while distributing wealth during their lifetime.
Capital gains and the importance of timing
Capital Gains Tax is also in the spotlight following the Autumn Budget Statement 2024, with a revised rate of 18% and 24% likely to impact investors’ behaviour. While less onerous than the previous 28% rate applicable to properties, the slight decrease may not be enough to alter transaction trends dramatically. Crucially, unlike other taxes, CGT enables much more control over decisions such as when to sell assets.
Planning for CGT becomes even more important when balancing other tax considerations and wealth goals. One strategic method involves selling and repurchasing shares to utilise the annual allowance of £3,000 without longer-term penalties. This approach requires timing – waiting over 30 days for a repurchase or conducting the transaction via a spouse, registered civil partner, ISA or pension can maximise its effectiveness.
Considering non-dom status versus other strategies
For individuals seeking to escape the UK tax net, non-domicile status might appear attractive theoretically but is fraught with complexities in practice. While Income Tax can often be avoided relatively quickly by moving abroad, full detachment from the IHT framework takes years. This leaves many questioning whether waiting for ten years outside the tax net is worth the effort.
Alternatively, gifting significant portions of wealth now can be a simpler and more immediate way to sidestep long-term IHT liabilities. Some clients are increasingly exploring philanthropy or intergenerational financial gifting to manage their estates while also creating a meaningful legacy.
Strategic planning is essential to minimise liabilities and create financial security
The UK’s evolving tax regulations create both challenges and opportunities. From ISAs to pensions, capital gains and inheritance provisions, strategic planning is essential to minimise liabilities and create financial security. The interplay of exemptions and allowances requires careful management, making tailored advice invaluable.
