We know talking tax often isn’t always popular, but the tax year-end is looming so we’ve got you covered. If you take action now you could make the most of the year-end tax planning opportunities still open to you.
INCOME TAX
Earning between £12,571 and £50,270 you will be taxed at the basic rate of 20% (dividends 8.75%).
Earning between £50,271 and £125,140 you will be within the higher tax band which means you’ll pay 40% tax (dividends 33.75%).
Your personal allowance is reduced by £1 for every £2 of income above £100,000. This means there’s no personal allowance when income exceeds £125,140. But you might be able to get it back by using our top tips below.
Earning over £125,140 you will be taxed at the additional rate of 45% (dividends 39.35%).
OUR TOP TIPS:
The personal savings allowance grants £1,000 of tax-free savings income to basic rate taxpayers. For higher rate taxpayers this figure is £500. Additional rate taxpayers don’t receive this allowance, so if you can, make sure you use it.
The £500 dividend tax allowance is available for all taxpayers. Amounts falling within this allowance are taxed at 0%.
You can transfer income-producing assets to a spouse or civil partner to make sure you’re both using all the available allowances. This is also useful if they are taxed at a lower rate.
Reduce your higher rate tax liability by extending your basic rate band. This can be done by making payments to a pension plan, making donations to charities under ‘Gift Aid’ or you could convert income into non-taxable forms.
Reducing your higher rate tax liability may be attractive if you’re A) earning between £60,000 and £80,000 and you get child benefit (as this benefit is reduced when your earnings exceed £60,000), or B) earning above £100,000 – not only are you losing your personal allowance, but you also lose your entitlement to tax free childcare.
If you are self-employed, make sure you’re claiming capital allowances when you buy assets that you use in your business. The annual investment allowance (AIA) is currently £1million per year.
CAPITAL GAINS
This is a tax on any profit you make when you sell an asset that has increased in value.
For 2024/25 you may make gains of £3,000 tax-free. This exemption cannot be carried forward into the next tax year so if you don’t use it, you lose it. Capital Gains Tax (CGT) rates for sales of most assets from 30 October 2024 are 18/24% depending on your level of income (or 28% for carried interest).
OUR TOP TIPS:
Have you used your annual exempt amount? If not, think about selling or gifting assets before 5th April.
Make sure you’re utilising your spouse or civil partners’ annual exempt amount by transferring assets to them before selling them.
Business Asset Disposal Relief (BADR – previously Entrepreneurs’ relief) is available on the first £1million of an individual’s lifetime qualifying gains. This can mean that CGT is due at 10% rather than 24% but you need to check that the conditions are met. The CGT rate for BADR is increasing to 14% for sales from 6 April 2025 and 18% from 6 April 2026.
If you own a second home, you can decide which property is treated as your primary residence, and therefore which property is exempt from CGT. Plan this carefully as the exemption of a gain on one residence means the gain on the other becomes chargeable. You must elect your main residence within two years of purchasing the second property.
PENSIONS & INVESTMENTS
You can pay up to £60,000 per tax year into a pension scheme. Unused allowances from the last 3 years can be used if you were a member of a qualifying pension scheme.
Are you making use of tax-free wrappers? You can save £20,000 per year into an ISA. Any income in this account will be free from tax.
OUR TOP TIPS:
Review your allowances. The £60,000 pension allowance is reduced by £1 for every £2 of an individual’s adjusted income over £260,000. If your adjusted income exceeds £360,000, you have a £10,000 allowance plus any unused allowances from the last 3 years. The tapered calculation can be tricky, so if you think this may apply to you, make sure to discuss this with your adviser.
The lifetime allowance for pensions was abolished from 6 April 2024. The allowance was previously £1,073,100, meaning that you could now save more into your pension without being penalised. The maximum amount that you can take tax free remains at 25% of your pension pot or £268,275, if lower.
Ensure you are taking advantage of your ISA allowance, and your spouse/civil partner is doing the same. You can also invest up to £9,000 for any children under18.
If you’re aged 18-39 you can open a Lifetime ISA and put in up to £4,000 a year until you’re 50. The government will add a 25% tax-free bonus to these savings, up to a maximum of £1,000 a year. This £4,000 counts towards your £20,000 annual ISA limit.
Consider investing in schemes or shares such as Enterprise Investment Schemes (EIS), Seed EIS (SEIS) or Venture Capital Trusts (VCTs). These investments offer upfront income tax relief but can carry higher risk.
INHERITANCE TAX
Inheritance Tax (IHT) is charged at 40% on the part of your estate (property, money and possessions) that’s above the £325,000 nil rate band (NRB) at death.
OUR TOP TIPS:
You can gift up to £3,000 each tax year, if this amount is unused, it carries forward for one year. These gifts can be exempt from IHT as soon as they are made. It’s also possible to make regular gifts out of your after-tax surplus income. It is important to keep records of gifts so that your representatives have a clear record when they are dealing with IHT after you’re gone.
Make a will – dying without one may increase tax and mean that assets are not distributed as you wished. THIS IS IMPORTANT!
Review the size of your estate and your will to make sure you benefit from the residence NRB. This is an additional amount up to £175,000 available on top of the individual NRB, where the deceased has left a residence to his or her direct descendants.
FURNISHED HOLIDAY LETS
From 6 April 2025 the special rules for furnished holiday lets (FHLs) are being abolished. FHLs will be treated as a normal rental property business and the valuable tax reliefs previously available will be lost. Speak to your adviser if this applies to you.
OUR TOP TIPS:
If you are thinking of selling your FHL, doing so before 6 April 2025 could be beneficial as it may allow you to claim BADR and access the lower 10% rate of CGT. Alternatively, you may need to consider stopping the FHL business before the end of the tax year to qualify for BADR on a sale within the next three years.
Consider the best use of any losses available. Following the changes, FHL losses will be converted into normal property losses and available to offset against your other property income and not just FHL profits.
Ask your adviser whether you may benefit from making an election to split the profits based on actual ownership split rather than the default even split (where married) for normal rental businesses.
CATCH UP ON NATIONAL INSURANCE CONTRIBUTIONS
You can usually pay voluntary NICs for the six prior tax years. However, for gaps in the tax years 2016/17 and 2017/18 the deadline has been extended to 5 April 2025. If you are missing contributions for those years, consider whether you should make voluntary contributions.
OUR TOP TIPS:
You can check your state pension forecast to find out if you have any gaps and should discuss this with your adviser if you are unsure whether additional contributions are worth making.
NON-DOM REFORMS
From 6 April 2025 the current tax regime for UK resident, non-domiciled individuals will be replaced. The changes could have significant impact for non-doms and UK domiciled individuals if they have spent time outside the UK.
OUR TOP TIPS:
If you think these changes could impact you, consider reading our articles which are linked below and reaching out to an adviser to discuss further.
Non-Dom reforms Part 1: Changes To Income Tax & CGT
Non-Dom reforms Part 2: Changes To IHT
THOUGHTS FOR THE FUTURE
Late payment interest – From 6 April 2025, HMRC are increasing the late payment interest rate by 1.5 percentage points (i.e. 4 percentage points above the Bank of England base rate). Based on the current rate, late payment interest will increase to a whopping 8.5%! Ensure your tax payments are up to date to avoid significant interest charges arising.
IHT Reliefs – The government announced in the last budget that changes to IHT are coming in April 2026, with significant reductions in the relief available for Agricultural Property Relief (APR) and Business Property Relief (BPR). Having proactive conversations with your adviser to review your estate and plan for the changes can result in large tax savings. See our article on the upcoming changes here.
Pension changes – From April 2027 it is proposed that some pension funds will form part of your estate for IHT purposes. Begin considering how these changes may impact you and your IHT exposure.
Salary sacrifice – The earnings threshold for employer’s NICs will reduce from £9,100 to £5,000 along with an increase in the rate from 13.8% to 15% from 6 April 2025. This means that employers will face significantly higher NIC costs. If you are an employer, consider whether a salary sacrifice pension scheme can be administered to achieve NIC savings and reduce the additional cost. Care must be taken and you should speak with a qualified adviser before implementing a salary sacrifice arrangement.
GET IN TOUCH
This information is not a personalised recommendation. You should always speak to your adviser to get tailored advice before taking any action. Our expert team are always happy to help.
