Five Tax Tips ahead of the Year End Deadline

FIVE TAX TIPS AHEAD OF THE YEAR END DEADLINE

In recent years, the tax burden has reached its highest level in a generation and tax allowances have been squeezed by successive governments. Yet it’s still worth making use of them as over time they still make a material difference — and if you don’t use them, you lose them, even to some of the wealthiest among us.

Take the £20,000 yearly Individual Savings Allowance (ISA). Introduced more than 25 years ago, it shields savers from capital gains and income tax. The result? Thousands of ‘ISA millionaires’¹. Assuming 6% annual returns from underlying stocks and shares, your ISA could join them in as little as 24 years.

The fact is that following good housekeeping each year, ahead of the 5 April  tax year end, personal wealth adds up over time. As a leading UK wealth manager, we encourage everyone to make the most of your allowances as a matter of course. Below are the top tips we remind our clients of:

1. Invest in your ISA. In the 2024/25 tax year, you can invest up to £20,000 in an ISA, shielding any future gains and income from tax. You can split this between a cash ISA, a stocks and shares ISA, an innovative finance ISA and a Lifetime ISA. You choose how much to put into each kind, with the exception of the Lifetime ISA that has a ceiling of £4,000. If you have children, you may also invest up to £9,000 into a Junior ISA for a child under the age of 18.
   
   
2. Prioritise your pension. Everyone has an allowance of up to £60,000 a year that you can contribute to your pension with full income tax relief at your highest rate. You, or your employer, can pay that much into your self-invested personal pension (SIPP) and receive tax relief. You can potentially backdate your pension contributions, using any remaining allowances from the past three tax years, taking your maximum contribution up to £200,000.
   
   
3. Make use of your lifetime gifts. If you’re starting to think about inheritance tax (IHT), you could consider making lifetime gifts to the next generation. In any one tax year, you have an annual exemption of up to £3,000, a small gift exemption of £250 and you can make gifts out of your excess income – all free from IHT. A couple each using the £3,000 annual allowance and making three small gifts of £250 annually could reduce their estate by £75,000 every ten years. The potential IHT saving would be £30,000.
   
   
4. Manage your capital gains. After significant reductions in the past few years, the annual capital gains tax allowance has fallen to £3,000. Above this amount, basic rate taxpayers pay 18% tax and higher rate taxpayers 24%. However, you can manage your capital gains tax payments to a degree by spreading the sale of assets over several years.
   
   
5. Review your tax situation. Every individual has a series of tax bands². Firstly, you have a personal allowance of £12,570 in the current tax year on which you do not have to pay tax, although this starts to fall if your income exceeds £100,000. After that, there is a basic rate band of 20% on income of £12,571 to £50,270; a higher rate band of 40% on income of £50,271 to £125,140; an additional rate of 45% on any income over £125,140. If you are a pensioner or have your own business, though, you can control how much you earn to make the best use of your income tax bands for a single tax year. You may also want to make use of your dividend allowance of £500. 

Deadlines are great for focusing the mind. When it comes to the end of the tax year, following these basic tips can make a difference in any one tax year but they can significantly enhance your wealth over time.

Some of these tips are straightforward planning items for you to take care of before the tax year end. Others may require sitting down and talking about your financial affairs and tax planning . There’s a lot to think about, which is why we’re here to help you explore the opportunities as part of our wealth management services.

Get in touch with a Brown Shipley Client Advisor to learn more or download our 'Top tips for better financial planning' guide. 

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