As the calendar year ends we move into the final quarter of the financial year and all eyes start turning to the end of the tax year. This means it’s a good time to take stock of what to tick off your financial planning list before April 5th 2025 in order to make your money work harder for you.
Our team of expert accountants have created this straightforward guide to help you get the most from your tax allowances and investments, setting you up for a successful financial year next year.
Here’s what to think about adding to your to-do list.
1. Make use of your personal allowances
Check your personal income tax allowance
Here’s something important to watch out for – while everyone gets a tax-free Personal Allowance of £12,570 this tax year, things get more complicated if you earn over £100,000. Your allowance starts reducing by £1 for every £2 you earn once you go beyond this threshold. This can actually mean paying an effective tax rate of 60% on some of your income – something you’ll want to avoid if possible.
Tax-Saving Tip: If you’re near or over that £100,000 mark, you might want to think about pension contributions. They’re a great way to bring your taxable income down and keep more of your personal allowance.
Check if you can benefit from Marriage Allowance
Here’s something that often gets overlooked. If you’re married or in a civil partnership and one of you earns less than £12,570, you could transfer £1,260 of unused allowance to your partner. It might not sound like much, but it could save you up to £252 in tax. Every little helps.
2. Use your ISA allowance before it’s lost
You’ve probably heard about ISAs as they’re a great way to start investing. You can put up to £20,000 in them this tax year and any returns you make are tax-free. Just remember, you can’t carry any unused allowance forward to next year as there’s a strict April deadline in line with the end of the financial year.
Note: While cash ISAs are safe, current high inflation means the purchasing power of your savings could be decreasing over time. For example, if your cash ISA pays 3% interest but inflation is at 4%, the ‘real’ value of your money is actually falling.
If you’re saving for the longer term, you might want to consider stocks and shares ISAs as an alternative, though remember these come with their own risks.
However if your cash is currently doing nothing, getting returns for your cash from an ISA is far better than not investing it.
3. Top up your pension while you can
Here’s something worth knowing about pensions – this year, you can put up to £60,000 into your pension and get tax relief on it. That includes what you pay in and what your employer adds. Even better, if you haven’t used your full allowance from the last three tax years, you might be able to carry it forward.
Tax-Saving Tip: If you’re a higher or additional rate taxpayer, don’t forget you can claim extra tax relief through your tax return.
4. Track down any missing pensions
While you’re at it, track down your missing pensions from previous jobs. If you have changed jobs multiple times, as most people do, you may have multiple pension pots with several different providers.
To keep on top of these, it would be best to track them down using the government’s pension tracking service. Once you have done this, you can combine them with your existing provider, making them easier to maintain. Therefore, you could more easily benefit from lower charges, greater investment choice and more flexibility in the future.
5. Take action on capital gains
The Capital Gains Tax allowance is dropping from £6,000 to just £3,000 in April 2024. That’s quite a dramatic change from the £12,300 we had in 2022/23.
So if you’re thinking about selling any investments or assets that have gone up in value, you might want to do it before the allowance drops. And here’s another helpful hint – if you’re married or in a civil partnership, you can actually use both of your allowances by transferring assets between you.
6. Set up regular investing
It is easy now to set up a direct debit that will automatically transfer money into your investment account each month and then set up regular investing on your platform, which will automatically buy the funds or shares you’ve chosen.
Many investment platforms will allow you to start investing as little as £25 or £50 a month and you can always pause it if you decide to skip a month for any reason.
7. Plan your dividend strategy
The rules around dividends are changing too. Right now, you can receive £1,000 in dividends tax-free, but that’s dropping to £500 from April 2024.
Tax-Saving Tip: If you run your own company, you might want to think about taking some dividends before the allowance reduces. Here’s another clever idea – if other family members are shareholders, you could spread the dividends around to make use of everyone’s allowances.
8. Think about inheritance tax planning now
Here’s a simple way to reduce potential inheritance tax – you can give away up to £3,000 each tax year without any tax implications. If you didn’t use last year’s allowance, you can carry it forward – but only for one year.
There are other tax-free gifts you can make too:
- Give up to £250 to as many different people as you like
- Help out with wedding costs (up to £5,000 for a child, £2,500 for a grandchild, or £1,000 for anyone else)
- Make regular gifts from your spare income
9. Consider tax-efficient investments
Here’s something interesting – the government offers some pretty generous tax breaks if you’re willing to invest in growing businesses. But there’s a catch – these investments do come with higher risks.
- The Enterprise Investment Scheme (EIS) is worth looking at – you can get 30% of your investment back as income tax relief. So if you invest £100,000, you could reduce your tax bill by £30,000. Pretty impressive, right?
- There’s also the Seed Enterprise Investment Scheme (SEIS), which is even more generous with 50% tax relief. And don’t forget about Venture Capital Trusts (VCTs) – they offer 30% tax relief plus tax-free dividends.
Just remember – these investments aren’t suitable for everyone. They’re typically harder to sell quickly, and you should only consider them as part of a broader investment strategy after getting professional advice.
10. Prepare for changes in the new tax year
Looking ahead, there are some important changes coming that you’ll want to know about. We’ve already mentioned the big ones – the Capital Gains Tax allowance is halving to £3,000, and the dividend allowance is dropping to £500.
However, in some better news National Insurance contributions have just gone down from 12% to 10%. But watch out – the personal allowance is staying frozen at £12,570 until 2028, which means inflation could push more people into higher tax brackets.
Get help with your tax planning
Tax planning can feel overwhelming – there are lots of moving parts to consider and it’s not always clear what’s the best move for your specific situation. That’s exactly why our team at Williamson & Croft is here to help. We’ll work with you to create a personal tax strategy that makes sense for your circumstances and helps ensure you’re not paying more tax than you need to.Want to talk through you