As the 5th of April draws near, it’s time to review your finances and maximise the allowances and reliefs available before the end of the tax year.
With recent changes introduced by Labour’s first Budget, Claire Davison, Financial Planner here at Active Chartered Financial Planners, tells you what you need to know to stay ahead:
- Pensions:
Pensions remain one of the most tax-efficient ways to invest for the future. Contributions benefit from tax relief, allowing your pension pot to grow tax-efficiently. Additionally, when accessing your pension, 25% of the fund can be withdrawn entirely tax-free. However, pensions are a long-term investment, with funds typically inaccessible until age 55—rising to 57 in 2028.
Since the introduction of Pension Freedoms, there are various flexible options to access your pension once you reach the relevant age, enabling you to tailor your income in retirement to suit your needs.
Tax Relief on Pension Contributions
You can receive tax relief on pension contributions up to 100% of your relevant earnings (e.g., salary and bonuses) for the current tax year. Higher earners may find pension contributions particularly valuable in mitigating the loss of their personal allowance or child benefit payments.
Employees may also explore the option of receiving bonuses as pension contributions, subject to employer agreement. Business owners, meanwhile, can consider contributing company profits into their pension pot. Both strategies can help reduce taxable income while growing your retirement savings.
For business owners, employer pension contributions can be made from pre-tax company income, rather than as personal contributions. This allows up to £60,000 per year (subject to tapering under the tapered annual allowance for high earners) to be contributed, with corporation tax relief available.
Contributions for Non-Earners or Low Earners
Even individuals with little or no earnings this tax year can benefit from pension contributions. Contributions of up to £2,880 (net) are eligible for tax relief, with an additional £720 added by HMRC, bringing the total annual contribution to £3,600.
Consideration of Allowances
The annual allowance for pension contributions in the 2024/25 tax year is £60,000 and remains the same in 2025/26. Unused allowances from the previous three tax years can often be carried forward to increase this limit, although this is subject to certain restrictions. High earners should be mindful of tapering rules that could reduce their allowance, while those who have flexibly accessed pensions may face the Money Purchase Annual Allowance, which limits future contributions.
Given the complexity of these rules, particularly for high earners or those with specific circumstances, seeking professional financial advice is strongly recommended.
In summary, pension planning is a powerful tool to reduce your current tax liabilities and build a robust retirement fund in a tax-efficient manner. For tailored advice, consult a qualified financial adviser to optimise your pension strategy.
- Income tax
To mitigate tax liability, it is important to be aware of the current Personal Allowance and income thresholds. The Personal Allowance remains at £12,570 for all UK taxpayers, but it begins to taper when Adjusted Net Income exceeds £100,000, reducing to zero once Adjusted Net Income reaches £125,140.
If your income is approaching these limits, consider strategies such as making pension contributions or charitable donations, as these can reduce your taxable income and help preserve your Personal Allowance.
Additionally, the High Income Child Tax Charge (HICTC) is triggered when income exceeds £60,000, with the charge being 1% for every £200 of income above this threshold. To reduce the impact of this charge, you may explore options such as adjusting your income through pension contributions or other tax-efficient planning methods.
- Individual Savings Accounts (ISAs):
Individual Savings Accounts (ISAs) provide a straightforward and effective method to keep your savings and investments free from tax. The ISA allowance is a “use it or lose it” opportunity, so it is crucial to utilise it before the end of each tax year to maximise the benefits.
ISAs are especially valuable for taxpayers, as savings interest is taxable above specific thresholds:
- Basic rate taxpayers: Tax is due on savings interest exceeding £1,000.
- Higher rate taxpayers: Tax is due on savings interest exceeding £500.
For individuals likely to remain taxpayers throughout retirement, maximising ISA allowances can help shelter savings and investments from future tax liabilities.
ISA Allowances for 2024/25
In the current tax year, you can contribute up to £20,000 into ISAs and these allowances are frozen until 5th April 2030. This allowance can be distributed across different types of ISAs, including:
- Cash ISAs
- Stocks & Shares ISAs
- Lifetime ISAs (capped at £4,000 annually)
- Innovative Finance ISAs
If utilising the Lifetime ISA, the remaining £16,000 of the annual allowance can be allocated to other ISA types.
Couples and ISA Inheritance
For couples, the ISA allowance means that up to £40,000 can be sheltered in ISAs during a single tax year. Additionally, ISAs offer inheritance benefits. Upon death, a spouse or civil partner can inherit the value of the deceased’s ISA, allowing the funds to remain within the tax-efficient ISA wrapper.
Junior ISAs for Children
Parents and guardians can consider opening a Junior ISA (JISA) for their children, with an annual contribution allowance of £9,000 in the current tax year. This provides a tax-efficient way to save for a child’s future.
For those investing into ISAs, particularly stocks and shares ISAs, seeking guidance from an independent financial adviser is highly recommended. A professional adviser can help you choose the right type of ISA for your needs, ensure compliance with contribution limits, and align your investment strategy with your long-term financial goals.
By making full use of your ISA allowances, you can effectively reduce tax liabilities, grow your savings or investments, and protect your wealth for the future.
- Capital Gains:
When you profit from the sale of an asset, a capital gain is created. While most personal assets such as your primary home, cars, and typical household possessions are exempt from tax, certain other items may be subject to Capital Gains Tax (CGT). These include investments and shares held outside of tax-advantaged accounts (e.g., pensions or ISAs), second properties, and other specified assets.
For the 2024/25 tax year, the CGT tax-free allowance is £3,000.
To maximise this allowance, consider strategies such as switching between similar investments, transferring assets between spouses to utilise their allowances, or offsetting gains with capital losses. Losses can be carried forward indefinitely, provided they are reported to HMRC within four years of occurrence. Due to the complexity of CGT planning, it is highly recommended to consult with an independent financial adviser.
The CGT rates that apply once the tax-free allowance is exceeded depend on your income tax band. With effect from 30th October 2024, the basic rate CGT increased from 10% to 18% and higher rate increased from 20% to 24%. Residential property CGT rates are also 18% and 24% respectively.
- Dividend Tax:
The dividend allowance remains at £500 from April 2024.
The rates of dividend tax, are currently:
| Income tax band | Dividend tax rate 2024/25 |
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
Inheritance Tax:
The Chancellor, in the Autumn Budget, announced that the IHT nil rate band and residence nil rate band, set at £325,000 and £175,000 respectively, will stay fixed at these levels until 5th April 2030.
Depending on factors such as your age and the value of your estate, you may wish to consider strategies for reducing your potential inheritance tax (IHT) liability.
Several IHT allowances are time-sensitive and vary by tax year, and making use of them could help mitigate the 40% IHT rate on estates valued above £325,000. In particular, the residence nil rate band, which can be as high as £175,000, is assisting many in keeping their estates below the IHT threshold. It is advisable to first assess your potential liability.
Firstly, the £3,000 gift exemption allows you to reduce your taxable estate without complications, and any unused portion of this allowance can be carried forward from the previous tax year.
Additionally, the £250 small gifts exemption permits you to make multiple gifts of up to £250 per recipient per tax year, free from IHT. However, this exemption applies only if the recipient is not also part of your £3,000 annual exemption.
There is also the ‘normal expenditure’ exemption for regular gifts. If you make consistent gifts, regardless of the amount, these may be exempt from IHT, provided they do not affect your standard of living.
Maintaining a detailed record of any gifts made will simplify the process for your estate’s executors. IHT planning can result in significant tax savings, so it is highly recommended to seek a professional review of your circumstances if you have any concerns.
- Marriage and other allowances
In addition to the allowances mentioned above, if you are married and your spouse is not fully utilising their personal allowance, you may be eligible to claim the marriage tax allowance, provided you are a basic rate taxpayer.
Furthermore, if you are approaching state pension age and are not expected to receive the full entitlement, you may have the opportunity to enhance your state pension. The New State Pension will be increased by 4.1% on 6th April 2025 in line with the full Triple Lock, to £230.25 per week. The Old State Pension increased on 6th April 2025 to £176.45 per week.
It is also worth considering the benefits of utilising the personal savings allowance and dividend allowance to maximise your savings.
These relatively small allowances can contribute to significant savings in the current tax year. However, it is always advisable to consult a qualified financial planner who can help you plan for the future and ensure your financial affairs are up to date.
Want to know more about Active Chartered Financial Planners? Contact the team on 01642 765957 or email info@activefp.co.uk OR visit the website
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