As the 5th of April approaches, marking the end of the UK tax year, it’s the ideal time to review your finances and take advantage of strategic tax-saving opportunities. Proper planning before year-end can minimize your tax liability and help you retain more of your income.
Here are some of the key tax planning strategies you can implement before the end of the UK tax year 2024-25:
Maximize Pension Contributions
- Personal Pension: Contributions to personal pensions can reduce taxable income, limit the tapering of personal allowances, and help maximize tax bands, reducing the tax burden for higher earners.
- Salary Sacrifice: Opting into salary sacrifice schemes allows you to exchange part of your salary for pension contributions, reducing both your taxable income and National Insurance contributions.
Utilize the Individual Savings Account (ISA) Allowance
For the 2024/25 tax year, you can contribute up to £20,000 across all ISA types (Cash, Stocks & Shares, Innovative Finance, and Lifetime ISAs). Income and gains within ISAs are tax-free, so ensure you use the full allowance before 5th April.
Use Your Capital Gains Tax (CGT) Allowance
The annual exempt amount for capital gains is £6,000 in the 2024/25 tax year. Consider selling assets on time to utilize this allowance, avoiding tax on the first £6,000 of capital gains.
Take Advantage of Marriage Allowance
If you’re married or in a civil partnership, and one partner earns below the personal allowance threshold of £12,570 for 2024/25, you can transfer up to £1,260 of the unused personal allowance to the other partner, potentially reducing their tax bill by £252.
Make Charitable Donations
Donations to registered charities via Gift Aid can reduce taxable income. As a higher-rate taxpayer, you can claim back the difference between higher-rate (40% or 45%) and basic-rate (20%) tax that the charity has already claimed.
Use the Dividend Allowance
The dividend allowance for the 2024/25 tax year is £500, meaning the first £500 of dividend income is tax-free. Be sure to take full advantage of this allowance before the tax year ends.
Claim Tax Relief for Buy to let and Work-Related Expenses
- Business Expenses: Claim allowable business expenses such as working from home costs, training, uniforms, and mileage.
- Property Expenses – Landlords can make repairs and claim property-related expenses in the same tax year. Paying bills on time is beneficial if rental accounts are prepared on a cash basis.
- Flexible Benefits: Use employer-provided tax-efficient benefits (e.g., childcare vouchers or cycle-to-work schemes) to reduce taxable income.
- Pre-Pay Expenses: Prepaying certain expenses, like insurance premiums or rent, for the next tax year can reduce your current taxable income.
Utilize Tax-Advantaged Investments
- Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS): These schemes offer 30% tax relief for higher-rate taxpayers. However, they carry higher risks due to their investment in early-stage companies.
Review Your Tax Code
If you suspect you’re overpaying tax due to an incorrect tax code, contact HMRC to have it reviewed. An incorrect tax code can result in overpayments.
Maximize Your Personal Allowance
- Income Splitting: If you have a spouse or partner, consider splitting income to ensure both use their personal allowances, reducing your overall tax bill.
In conclusion, proactive tax planning before the 5th of April can help you maximize your savings and minimize your tax liabilities. By strategically utilizing available allowances and reliefs, you can significantly reduce your tax burden and make the most of your financial opportunities.