Before the tax year draws to a close, it is important to ensure your tax affairs are arranged efficiently. Year-end tax planning can provide significant benefits, including reducing your tax liabilities and ensuring that you make full use of available allowances and reliefs.
We have compiled a checklist, and some key planning points that you may wish to consider before 5th April 2025.
Utilise available allowances
The UK tax system offers a range of tax-free allowances and reliefs that can help reduce your taxable income. These include:
Personal allowance
For the 2024/2025 tax year, the personal allowance is £12,570.
The allowance is the amount you can earn before paying income tax. However, this is reduced if your income exceeds £100,000, by £1 for every £2 earned over the threshold.
Savings allowance
Basic rate and higher rate taxpayers receive a savings allowance of:
£1,000 for basic rate taxpayers
£500 for higher rate taxpayers
Dividend allowance
The dividend allowance for the 2024/2025 tax year is £500. Using this allowance increases your tax-free income. Dividend income received above this allowance is subject to tax at
8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate
Pension contributions
The annual allowance for pension contributions is £60,000.
Although you can receive tax relief on pension contributions, thereby reducing potential tax liabilities, it is important to note that the allowance may be tapered if you are a high income individual or lowered if you have already accessed your pension.
Carry forward unused allowance
If you have not used your full pension allowance in the past three years (2021/2022, 2022/23 and 2023/24) you may be able to carry it forward to the current year.
Individual Savings Accounts (ISAs)
For the 2024/2025 tax year, the annual ISA allowance is £20,000.
ISAs allow you to save and invest without being subject to tax on interest, dividends, or capital gains. The interest that you receive from an ISA will not affect your savings allowance. It is worth considering whether you have used your full ISA allowance and if not, how you can utilise this to reduce your exposure to tax.
Tax-efficient investments
There are also tax-efficient schemes available for investing in that can provide income tax relief. A couple of them are:
Enterprise Investment Schemes (EIS)
If you were to invest in an EIS then you can claim up to 30% income tax relief on investments up to £1m, as long as the shares are held for at least three years from the date of issue. EIS also allows you to defer Capital Gains Tax (CGT) on assets sold, up to the amount subscribed in an EIS qualifying company. Please contact us if you would like further information.
Venture Capital Trust (VCT)
Income tax relief of 30% is also available on investments made into a VCT, up to £200,000, with tax-free dividends and an exemption from capital gains tax on the shares.
Gift Aid donations
Charitable donations made under gift aid can be used to increase your basic rate band for higher rate and additional rate taxpayers.
Check whether your donations qualify for Gift Aid and whether they are appropriately recorded before the end of the tax year.
You will not get relief if you are a basic rate taxpayer, and may have to pay back any Gift Aid claimed.
Capital Gains Tax (CGT) planning
The CGT annual exemption for the 2024/2025 tax year is £3,000.
Ensure you have utilised your CGT exemption, as this cannot be carried forward. It is also worth considering if there are any capital losses you could realise, which can be used to offset any gains you have made, reducing the amount of capital gains tax you need to pay.
Spousal/civil partner transfers
A reminder that you can transfer assets to your spouse or civil partner without triggering CGT, as transfers between spouses/civil partners are exempt from Capital Gains Tax. You may want to consider this if your spouse/civil partner has not used their CGT allowance, tax can be saved by using their CGT annual exemption on any disposal.
Inheritance Tax (IHT)
Gifts are exempt from IHT up to a total of £3,000 in each tax year. You may also have your annual exemption available from the previous year (2023/2024) if this was not used. This will be lost if not used in 2024/2025.
In summary
We have set out this checklist for you to think about when considering end-of-year tax planning. Before taking any actions, it may be best to seek tax advice to ensure that the appropriate actions are taken.
If you would like to discuss any tax queries with one of our experts, please call our Leicester office on 0116 254 9262, or Loughborough office on 01509 263500. Alternatively, our contact form is here.