5th February 2025
5 minute read
The end of the financial year is nearly upon us, and it’s time to get in quick and make the most of exemptions before April is upon us. But that’s not all that should be on your financial spring cleaning list. Here’s our ten-point guide on what to tick off before the 2025–26 tax year kicks off.
1. CHECK YOUR INCOME TAX BRACKET
Before the tax year ends, evaluate your income tax bracket. If you’re close to a threshold, such as the higher rate (£50,270) or additional rate (£125,140) for the 2023/24 tax year, consider strategies to reduce your taxable income. Pension contributions, charitable donations, gifts, or investments in Enterprise Investment Schemes (EIS) or Venture Capital Trusts (VCTs) can help you reduce your tax liability and stay within a lower band, potentially saving significant tax costs.
You could also consider transferring a personal allowance in your family – if your spouse of civil partner is a basic rate tax payer you’ll be able to transfer £1,260 of your allowance across if you haven’t earned up to the £12,570 threshold.
2. MAKE THE MOST OF YOUR DIVIDEND ALLOWANCE
The annual tax-free dividend allowance for 2023/24 is £1,000, but it will fall to £500 in 2024/25. If you have investments in shares or dividend-paying funds, ensure you maximise this allowance. If your dividends exceed the allowance, consider shifting shares into an ISA or using joint accounts with or gifting to a spouse to reduce the overall tax liability.
3. USE YOUR ISA ALLOWANCE
You can invest up to £20,000 in an Individual Savings Account (ISA) during the 2023/24 tax year. ISAs provide tax-free growth and income, so it’s a valuable allowance to maximise. You can split your contributions across cash ISAs, stocks and shares ISAs, or innovative finance ISAs. It can’t be carried over – if you don’t use this allowance by 5th April, it’s lost forever.
4. CAPITAL GAINS TAX EXEMPTION
The annual tax-free allowance for capital gains is £6,000 for the 2023/24 tax year but will drop to £3,000 in 2024/25. If you’ve made gains on property or other assets, consider realising those gains before 5th April to use up your allowance. Pairing gains with losses or transferring assets to a spouse can further optimise your capital gains position.
5. £3,000 ANNUAL GIFTING ALLOWANCE
You can gift up to £3,000 each tax year without it being counted towards your inheritance tax (IHT) liability. If unused, this allowance can carry over for one year. Making gifts to family or friends before the tax year ends is a simple way to reduce your estate’s value for IHT purposes. If there’s a been a wedding or civil partnership for your child as well this year, you can make an additional tax-free gift of up to £5,000.
6. MAXIMISE PENSION CONTRIBUTIONS
Pension contributions are one of the most tax-efficient ways to save for the future. Contributions benefit from tax relief at your marginal rate, which could significantly reduce your taxable income. For 2023/24, the annual allowance is £60,000, but you must ensure contributions don’t breach your lifetime allowance limits (subject to recent changes).
7. EVEN NON-TAXPAYERS CAN BENEFIT FROM PENSION TAX RELIEF
Currently, anyone under 75 with UK earnings can receive tax relief when they pay into a personal pension such as a SIPP. This can mean a 25% boost to the amount you contribute. For instance, an £800 payment becomes £1,000 invested once HMRC adds basic rate tax relief. And if you haven’t earned anything you can still contribute a modest amount into a pension and receive the tax relief – currently £2,880. This is particularly useful for a couple where one is a taxpayer and the other isn’t.
8. CARRY FORWARD UNUSED PENSION ALLOWANCES
If you haven’t fully used your pension annual allowance (currently £60,000 or 100% of your earnings, whichever is lower) in the past three years, you may be able to carry forward unused allowances. This allows you to make larger contributions and claim additional tax relief, provided you had a pension in those years and meet income thresholds.
9. CHECK INHERITANCE TAX (IHT) PLANNING
Beyond the £3,000 annual gifting allowance, consider using other exemptions, such as gifts out of surplus income or regular small gifts. Reviewing your estate plan can help reduce your potential IHT liability, ensuring more of your wealth is passed to your beneficiaries.
10. REVIEW TAX-EFFICIENT INVESTMENTS
Tax-efficient investment schemes, such as EIS, VCTs, and the Seed Enterprise Investment Scheme (SEIS), offer substantial tax reliefs, including income tax relief, capital gains deferral, and inheritance tax exemptions. These can be excellent options for high earners looking to reduce tax while supporting growth-oriented businesses.
It’s also a great time of year to go through your outgoings to weed out any redundant subscriptions and set up new regular deposits into savings and investments for the year. Booking a check-in with your financial advisor is also the best way to start the new 2025 tax year.
