Top tips for the tax year end

As we approach the end of the UK tax year on 5 April 2025, it's important to review your financial situation and make the most of your available tax allowances. This can help you reduce your tax liability, increase your savings, and grow your wealth more efficiently. 

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're married or in a civil partnership, you can double your combined allowance to £40,000. Consider the 'bed and ISA' process to realise a capital gain and then reinvest within an ISA, but seek financial advice as this involves a short period out of the market.

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. If you're not working and are under 75, you can still contribute up to £2,880 each tax year, boosted by tax relief to £3,600.

3. Use your capital gains tax allowance

You can make tax-free gains of up to £3,000 this tax year. This allowance cannot be carried forward, so it's important to use it to reduce future CGT liabilities. Transferring assets between spouses can help utilise both annual CGT exemptions.

4. Use your gift exemption

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 unused allowance from the previous tax year.

Additionally, you can give as many £250 gifts per person as you want, provided you haven't used your £3,000 exemption for the same person. Larger gifts may be exempt from IHT if you live for at least seven years after making them. 

5. Plan for charitable donations

Donations to charity can reduce your taxable income. Gift Aid allows charities to claim an extra 25p for every £1 you donate, and higher-rate taxpayers can claim additional tax relief.

6. Review savings income

The Personal Savings Allowance (PSA) allows basic-rate taxpayers to earn up to £1,000 in savings interest tax-free, and higher-rate taxpayers up to £500. Additional-rate taxpayers do not receive this allowance.

7. Consider Junior ISAs

Children are entitled to a Junior ISA (JISA) allowance of £9,000 per annum. You could consider funding a JISA to provide your children with a nest egg when they turn 18. Like regular ISAs, gains within a JISA are free from CGT, and no income tax is payable on interest or dividends.

8. Dividend allowance

The dividend allowance is £500 per year. Ensure you make use of this allowance, as it cannot be carried forward. Dividends are subject to lower tax rates compared to salary.

9. Consider tax-incentivised investments

Investing in tax-incentivised schemes like the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) can offer significant tax benefits while supporting early-stage businesses in the UK.

• 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 investing in knowledge-intensive companies). Additionally, you can defer capital gains tax (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 risks due to the nature of the businesses they support, so it's essential to seek advice to determine if they align with your financial goals and risk tolerance.

Why it's important to maximise your tax allowances

1. Reduce tax liability: By making full use of your allowances, you can lower the amount of tax you owe, keeping more of your money in your pocket.

2. Increase 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.

3. Grow your wealth: Effective tax planning can enhance your overall financial strategy, enabling you to achieve your long-term financial goals more efficiently.

4. Support your family: Using allowances like Junior ISAs and making financial gifts can provide financial security for your loved ones and reduce future inheritance tax liabilities.

By taking these steps before the end of the tax year, you can make the most of your allowances and potentially grow your wealth. 

For personalised advice and guidance as we move into 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.