Navigate your financial future: Smart moves for the new tax year

The new tax year brings new opportunities

As we move into the new UK tax year beginning 6 April 2025, it is the perfect time to review your finances and take advantage of your tax allowances. With several changes to personal tax thresholds and allowances now in effect, early planning can help you reduce your tax bill, protect your wealth, and optimise savings.

Nine ways to make the most of your tax allowances

1. Utilise your ISA allowance

You can invest up to £20,000 in Individual Savings Accounts (ISAs) this tax year. Gains within an ISA are free from capital gains tax (CGT), and no income tax is payable on interest or dividends.

If you are married or in a civil partnership, you can double your combined allowance to £40,000 by using both of your ISAs.

Consider the 'bed and ISA' process where you sell investments held outside of an ISA and immediately buy them back within an ISA. You effectively end up with the same portfolio as before, but your investments are housed in a more tax-efficient account. Bear in mind the short time out of the market and always seek financial advice.

2. Boost your pension contributions

The maximum tax-relievable amount you can save into a pension each tax year is £60,000 or 100% of your earnings, whichever is lower. High earners may have a reduced allowance.

Those under 75 and not working can still contribute £2,880 net (£3,600 gross after tax relief). Also consider using carry forward rules to utilise any unused allowances from the previous three tax years.

3. Use your capital gains tax allowance

The CGT annual exemption has been reduced over previous tax years. It is £3,000 in 2025/26. However, this allowance cannot be carried forward, so it is important to use it to reduce future CGT liabilities.

Transferring assets between spouses can help utilise both annual CGT exemptions.

Some important CGT changes announced in the October 2024 Budget have now taken effect:

New tax rules for non-doms

• From 6 April 2025, long-term residents now face UK tax on their worldwide income and gains even if the UK is not their permanent home (‘domicile’). Previously, under the ‘remittance basis’, non-doms were able to not pay UK tax on their foreign income and gains provided they did not bring it (remit it) into the UK. 
• A Temporary Repatriation Facility will enable former remittance basis users to bring capital representing previous years’ foreign income and gains into the UK with a reduced tax charge.
• New arrivals to the UK will benefit from up to four years of tax exemption on their foreign income and gains. There is also a new residence-based system for inheritance tax. 

Agricultural property relief extended 

• From 6 April 2025, the scope of agricultural property relief (APR) from inheritance tax will be extended to land managed under an environmental agreement. This means land taken out of agricultural production permanently or for an extended period for this reason does not lose relief.
• Further reaching changes to APR, announced in October’s Budget, are expected to be introduced in a year’s time. 

Business asset disposal relief (BADR)

• On 6 April 2025, the rates payable by taxpayers eligible for BADR and Investors’ Relief rose from 10% to 14%.
• It will increase again to 18% from 6 April 2026, which is something to bear in mind if you are planning on making any qualifying disposals this tax year.
• The rate for ‘carried interest’ gains rose from 18%-28% to a single rate of 32%.

4. Use your gift exemption

The annual gift exemption remains at £3,000 per person. Consider using your annual gift exemptions and making larger gifts to reduce the value of your estate for inheritance tax (IHT) purposes. You can give away up to £3,000 each tax year without it being included in your estate for IHT purposes. You can also carry forward any unused allowance from the previous tax year, potentially gifting £6,000 tax-free.

You can still make unlimited £250 gifts per individual, provided you do not use your £3,000 exemption for the same person. Larger gifts may fall outside your estate for Inheritance Tax if you survive for seven years.

5. Plan for charitable donations

Donating through Gift Aid remains a highly efficient way to support charities and reduce your tax bill. Higher-rate and additional-rate taxpayers can claim back the difference between their tax rate and basic rate on donations.

6. Review savings income

Review your savings structure to make sure interest income remains tax efficient. The Personal Savings Allowance (PSA) is unchanged for 2025/26:

• Basic-rate taxpayers: up to £1,000
• Higher-rate taxpayers: up to £500
• Additional-rate taxpayers: £0.

7. Consider Junior ISAs (JISA)

The Junior ISA allowance remains at £9,000 for 2025/26. Funding a JISA is a tax-efficient way to build a future nest egg for your child or grandchild, with all gains and income tax-free.

8. Dividend allowance

The dividend allowance is £500 for the 2025/26 tax year. Ensure you make use of this allowance as it cannot be carried forward. Dividends are subject to lower tax rates compared to salary and any dividend income above £500 is now taxed at:

• Basic-rate taxpayers: 8.75%
• Higher-rate taxpayers: 33.75%
• Additional-rate taxpayers: 39.35%.

Review how you hold income-producing assets, especially if you are a business owner or investor, and make full use of this allowance.

9. Consider tax-incentivised investments

Investing in tax-incentivised schemes like the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) still offer attractive tax advantages for eligible investors:

• Enterprise Investment Scheme (EIS)
   
  By investing in EIS-qualifying companies you can receive 30% income tax relief on investments up to £1 million per year (or £2 million, if at least £1million is in invested in knowledge-intensive companies).
  
  Additionally, you can defer CGT if gains are reinvested into EIS-qualifying companies, and benefit from inheritance tax exemption after holding the shares for at least two years. Loss relief is also available, allowing you to offset losses against your income or capital gains.
    

• Venture Capital Trusts (VCT)
   
  VCTs allow you to invest in a portfolio of small, growing UK businesses. You can receive 30% income tax relief on investments up to £200,000 per year, provided the shares are held for at least five years.
   
  Dividends from VCT shares are tax-free, and you are exempt from CGT on profits when selling your VCT shares.
  These investments carry higher risk, so professional advice is essential to determine if they align with your financial goals and risk tolerance.

   

Why maximise your tax allowances?

By making just a few smart money moves now, you will:

• Reduce your tax bill: by making full use of your allowances, you can lower the amount of tax you owe, keeping more of your money in your pocket
• Increase your savings: tax-efficient savings options like ISAs and pensions allow your investments to grow without being eroded by taxes, helping you build a more substantial financial cushion
• Grow your wealth strategically: long-term tax planning can improve your ability to reach your financial goals
• Support your family: using allowances can help you build wealth for future generations as well as reduce your IHT liabilities.

For personalised advice and guidance for the new financial year, reach out to your Arbuthnot Latham wealth planner.

Tax planning can be complex, so seeking professional advice from a tax adviser is recommended.