Streamlined End-of-Year Tax Planning Checklist

As the 2024/25 tax year ends on 5th April 2025, reviewing your financial position is crucial to optimise savings, investments, and tax efficiencies. Let’s explore key actions to consider before the tax year closes.

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Maximising Your ISA Allowance

ISAs offer tax-free interest, dividends, and capital growth. The 2024/25 ISA allowance is £20,000 per person, a use-it-or-lose-it opportunity as unused portions cannot be carried forward. Options include:

• Cash ISA: Low-risk savings, benefitting from rising interest rates.
• Stocks and Shares ISA: Medium to long-term investments with market risk.
• Innovative Finance ISA: Peer-to-peer lending, higher risk but potential for greater returns.
• Lifetime ISA (LISA): For 18-39 year-olds saving for a first home or retirement; contributes up to £4,000 yearly with a 25% government bonus.
• Junior ISA: Up to £9,000 per year to build tax-free savings for children.

Married couples or civil partners can use both allowances, shielding up to £40,000 from tax annually.

Capital Gains Tax (CGT) Planning

The CGT exemption for 2024/25 is reduced to £3,000. CGT rates increased in the October 2024 Budget:

• Basic rate taxpayers: 18% (up from 10%)
• Higher/additional rate taxpayers: 24% (up from 20%)

Assets can be transferred between spouses tax-free, allowing both partners to use their allowances. Consider a "Bed and ISA" strategy—selling investments in a General Investment Account and rebuying them within an ISA—to crystalise gains and protect future growth from tax. Acting before 5th April ensures full CGT allowance utilisation.

Pension Planning

Pension contributions offer immediate tax benefits:

• Tax relief at marginal rates: 20% (basic), 40% (higher), and 45% (additional)
• Tax-free growth within pensions
• No lifetime allowance (previously £1,073,100)
• 25% tax-free lump sum (capped at £268,275)

The annual allowance for 2024/25 is £60,000 (or 100% of relevant UK earnings, whichever is lower), tapering to £10,000 for incomes above £260,000. Unused allowances from the past three years can be carried forward. Employees should check if their workplace pension contributions can be increased, while the self-employed may reduce corporation tax by making pension contributions through a limited company. Even with no earnings, a gross contribution of £3,600 still receives 20% tax relief.

Avoiding the 60% Tax Trap

Earnings over £100,000 reduce your £12,570 personal allowance by £1 for every £2 earned, disappearing entirely at £125,140. This creates an effective 60% tax rate on income between £100,000-£125,140. A £20,000 pension contribution can restore your personal allowance, lowering your tax bill while boosting retirement savings.

Inheritance Tax (IHT) Planning

The standard IHT threshold is £325,000, with an additional £175,000 residence nil-rate band for property passed to direct descendants. Assets above these are taxed at 40%. Consider these allowances:

• £3,000 IHT annual exemption (plus previous year’s unused allowance)
• £250 gifts to unlimited individuals
• Gifts from surplus income (not liable for IHT)

While pensions will form part of taxable estates from April 2027, drawing pension income may also incur income tax.

Additional Tax Planning Considerations

• Dividend Allowance: Reduced to £500 (from £1,000 in 2023/24). Dividends above this are taxed at 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).
• Personal Savings Allowance: £1,000 for basic rate and £500 for higher rate taxpayers. Additional rate taxpayers receive none.
• Tax-efficient investments: Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCTs), and Seed Enterprise Investment Scheme (SEIS) offer significant tax reliefs but carry high risk.

Take Action Before 5th April

Acting now helps minimise tax liabilities and maximise savings. Ensure you use all available allowances and reliefs. For tailored advice, speak with a financial adviser.

Tax laws and HMRC practices are complex and subject to change. Always seek professional advice to suit your individual circumstances. For tailored advice, speak with a financial adviser here at Integritas Financial Planners by calling 01283 372010.

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