Make the most of your money before the 2024/2025 tax year ends on 5 April

Our money is hard-earned and valuable, making it understandable that many people hesitate when it comes to taxes. However, mastering the art of financial planning can profoundly shape your future.

The UK tax system is complex, but there are many forms of assistance and allowances available. With the current tax year running until 5 April 2025, you have the opportunity to enhance your financial situation. By embracing various tax reliefs and allowances, you can minimise your tax liabilities and elevate your financial well-being.

WHY PERSONAL TAX PLANNING MATTERS

Personal tax planning should be a priority for anyone looking to maximise the amount they retain from their income or investments.

Taking proactive steps before the end of the tax year allows you to take advantage of available reliefs, exemptions, and options that can help protect your financial future.

To effectively manage your tax liabilities, it's essential to have a thorough understanding of the tax system. By staying informed and acting promptly, you can make the most of available allowances and consider strategic opportunities for the future, such as enhancing retirement stability or optimising savings.

THE KEY DATES IN THE UK TAX CALENDAR

The current tax year concludes on April 5, 2025. This date also signifies the end of your personal earnings cycle for the year, which is important for determining your tax band.

Understanding your financial position is crucial, as it ensures you can claim all the allowances and reliefs to which you are entitled.

Starting on April 6, 2025, a new tax year will begin. This transition makes it an ideal time to review your financial situation, plan for the future, and implement effective strategies to achieve both your short-term and long-term financial goals.

MARRIAGE ALLOWANCE

Couples can take advantage of the Marriage Allowance, which allows one partner to transfer up to £1,260 of their unused Personal Allowance to the other partner. This transfer can reduce their overall tax liability by up to £252. Although it is often overlooked, it can significantly benefit those who qualify.

The Marriage Allowance applies only to married couples or those in registered civil partnerships. It is particularly useful when one partner earns below the personal tax threshold while the other is a basic rate taxpayer. By efficiently sharing allowances, couples can optimise their household finances.

SALARY SACRIFICE FOR PENSION CONTRIBUTIONS

Salary sacrifice schemes, offered by many employers, are an efficient way to contribute to your pension while also reducing your tax and National Insurance contributions (NICs). By agreeing to a lower salary, your employer can pay the deducted amount directly into your pension scheme, allowing you to benefit from tax advantages while increasing your retirement savings.

Additionally, some employers may reinvest their NIC savings back into your pension, which can provide extra benefits. Over time, this approach can help you achieve larger contributions while minimising your current tax liabilities.

FLEXIBLE ISA STRATEGY

Individual Savings Accounts (ISAs) are a popular and tax-efficient way to save or invest. With Cash ISAs and Stocks & Shares ISAs, your savings benefit from exemptions from Income Tax, Capital Gains Tax, and Dividend Tax.

The annual contribution limit for ISAs is currently £20,000. Certain ISAs, like the Lifetime ISA, are designed to support long-term goals, such as purchasing your first home or boosting retirement savings. The Lifetime ISA offers a 25% government bonus on contributions of up to £4,000 each year, making it an excellent option for younger savers aged 18 to 40.

THE KEY CHANGES TO ISAS IN 2024/2025

Recent rule updates in November 2024 have made fractional shares within an ISA wrapper tax-efficient, creating new opportunities for savvy investors. These changes also allow for ISA transfers between providers, enabling access to better terms. However, it’s important to ensure that limits and tax benefits remain intact during this process.

Flexible ISAs add another layer of practicality, allowing withdrawals and replacements of funds within the same tax year without affecting your allowance. Please note that this feature is not available for Junior ISAs or Lifetime ISAs.

REVIEWING YOUR PENSIONS BEFORE THE TAX YEAR END

Maximising your pension contributions is an important part of year-end financial planning. Contributions receive tax relief, and the annual allowance currently stands at £60,000 gross. However, high earners with adjusted incomes exceeding £260,000 will experience a reduction in these allowances. Planning contributions for minor children, adult children, and grandchildren can also enhance your tax and wealth strategies. Additionally, keep in mind the 'Carry Forward' rules, which allow you to backdate unused allowances from the past three years.

PROTECTION FROM INHERITANCE TAX

Inheritance Tax planning is an important consideration for families, especially since the current thresholds are frozen until April 5, 2030. The Residence Nil-Rate Band provides significant relief when passing property to children or grandchildren, allowing for exemptions of up to £1 million for married couples.

Recent proposals announced during the Autumn Budget Statement 2024 include integrating pensions into the Inheritance Tax framework, which complicates their effectiveness as estate planning tools.

Alternatives such as gifting, whole-of-life insurance policies, or trust arrangements may be more advantageous.

MAKING TAX-EFFICIENT GIFTING DECISIONS

Gifts provide an effective way to reduce taxable estates. Exemptions include wedding gifts, annual allowances of up to £3,000, and contributions to charities or political parties. By making proper use of these provisions, families can lower inheritance tax liabilities while sharing their wealth during their lifetime.

CAPITAL GAINS AND THE IMPORTANCE OF TIMING

Capital Gains Tax (CGT) is under scrutiny following the Autumn Budget Statement of 2024. The revised rates of 18% and 24% are expected to influence investor behavior. Although these rates are lower than the previous 28% applicable to properties, the reduction may not be significant enough to dramatically change transaction trends.

Unlike many other taxes, CGT offers more control over decisions regarding when to sell assets, making planning for CGT essential as individuals balance other tax considerations and their wealth goals. One effective strategy is to sell and then repurchase shares to take advantage of the annual allowance of £3,000 without incurring long-term penalties. This approach requires careful timing; waiting more than 30 days to repurchase or conducting the transaction through a spouse, registered civil partner, ISA, or pension can enhance its effectiveness.

CONSIDERING NON-DOM STATUS VERSUS OTHER STRATEGIES

For individuals looking to escape the UK tax system, non-domicile status may seem attractive in theory but is complicated in practice. While it is often possible to avoid Income Tax by relocating abroad, completely removing oneself from the Inheritance Tax (IHT) framework can take years. This situation leads many to wonder whether it is worth waiting a decade to be free from the tax net.

Alternatively, gifting large portions of wealth now can provide a simpler and more immediate way to reduce long-term IHT liabilities. Some clients are increasingly considering philanthropy or intergenerational financial gifting as strategies to manage their estates while also creating a meaningful legacy.

STRATEGIC PLANNING IS ESSENTIAL TO MINIMISE LIABILITIES AND CREATE FINANCIAL SECURITY

The evolving tax regulations in the UK present both challenges and opportunities. From Individual Savings Accounts (ISAs) to pensions, as well as capital gains and inheritance provisions, strategic planning is essential for minimising liabilities and achieving financial security. The interaction of exemptions and allowances necessitates careful management, making personalised advice invaluable.