Planning for tax year end – top ten tips

Here’s some top tips for you to go through with your clients.

1.      Maximise personal income tax allowances

Whilst every individual is eligible to benefit from a personal allowance of £12,570, this allowance is tapered by £1 for every £2 of ‘adjusted net income’ above £100,000. This means those with income of £125,140 or more fully lose their personal allowance. From a planning perspective, consideration ought to be given to making pension contributions or gift aid donations as the gross amount is deducted from the individual’s income and thus reduces their ‘adjusted net income.’

For married couples/civil partners, consideration ought to be given as to whether they qualify for the marriage allowance. This allowance means that £1,260 of the personal allowance can be transferred to a spouse or civil partner, which provides a tax saving of £252. To benefit as a couple, the lower earner must normally have an income below the personal allowance (£12,570) and their partner must be paying income tax at the basic rate.

Basic and higher rate taxpayers should also aim to use their personal savings allowance against their savings income were possible.

2.      Use the dividend allowance

Every individual is entitled to benefit from a dividend allowance which essentially allows them to receive up to £500 of dividend income tax-free for the 2024/2025 tax year. Those able to control the amount of dividend income they receive, such as shareholding directors of private companies, could plan to take advantage of this tax-free allowance by distributing dividends before the tax year ends.

3.      Maximise the ISA subscription limit

Making use of the annual ISA subscription limit will appeal to many as this helps build a tax-free fund for flexible access when needed. The current limit is £20,000 and is frozen until 5 April 2030. The limit applies to each tax year, so for those who haven’t already maximised the limit there’s still time to do so. A stocks and shares ISA will especially appeal to those who already use their dividend allowance and pay tax at the higher rates.

4.      Consider investments which provide income tax relief  

Investing in Venture Capital Trusts (VCT), Enterprise Investment schemes (EIS) or Seed Enterprise Investment schemes (SEIS) while higher risk, will appeal to those who wish to benefit from income tax relief against their income tax liability. These investments are deemed to be high risk so would generally be considered after other planning has been carried out, such as ISAs, pensions, unit trusts, investment bonds, etc.

Investing in VCT shares will also appeal to higher/additional rate taxpayers as they pay tax-free dividends.  

5.      Use the capital gains tax annual exemption

The annual capital gains tax (CGT) exemption is £3,000 for the 2024/2025 tax year and is lost if it isn’t used. Therefore, individuals can realize gains up to this amount without paying tax. Some individuals may therefore wish to consider selling investments before the end of the tax year to use this exemption.

6.      Make charitable donations

Donations to registered charities can qualify for tax relief through Gift Aid. For higher-rate taxpayers, individuals can claim back the difference between the basic and higher rate of tax on donations. Donating appreciated assets can also help reduce an individual’s CGT liability.

7. Use the pension annual allowance
Making the most of pension contributions is a great and straightforward way to reduce an individual’s tax bill. They can personally contribute, and get tax relief, up to 100% of their earnings or £3,600 if earnings are below that in any one tax year. However, total contributions including those paid by an employer are also tested against the annual allowance (AA), which is, currently, £60,000 as a standard. The AA may be reduced if the individual has accessed income from their pension or if they have taxable income in excess of £200,000. 

It is possible to carry forward unused AA from the previous three tax years, in most circumstances, although any personal contributions will still be tested against earnings for the current tax year. Note that 5 April 2025 is the last opportunity to use any unused AA, of up to £40,000, from 2021/22.

8. Make third party pension contributions

Individuals should consider making a net pension contribution of up to £2,880 (£3,600 gross) each year for members of their family, including children and grandchildren, who do not have relevant UK earnings. The £720 basic rate tax relief added by the Government each year is a significant benefit and the earlier that pension contributions are started the more they benefit from compounded tax-free returns.

9.      Use inheritance tax exemptions

Each individual is entitled to an annual exemption of £3,000 which they can use each tax year. Any unused annual exemption can be carried forward for one year only provided the current year’s exemption is used first. It is, therefore, advisable to use any available annual exemption carried forward from last year before 6 April 2025.

The small gifts exemption enables individuals to make any number of gifts of up to £250 per person, provided this exemption is not used together with the annual exemption for the same person.

For those who have income which is surplus to their needs, it may be appropriate to make gifts of such surplus income to use the normal expenditure out of income exemption. The gifts must be made from income and must not impact their usual standard of living. The individual should also establish a regular pattern of gifting and ideally keep records of such gifts – they can use HMRC’s IHT403 form to do so.

The tax year end is also a good time to generally consider a client’s inheritance tax position with a view to them making larger gifts, if they have surplus capital available.

10. Review their overall investment portfolio

Tax-year end provides a great opportunity to review an individual’s overall investment portfolio to ensure that they are able to maximise their allowances and objectives, but also to ensure it is still in line to meet their overall objectives looking ahead to the new tax year and future tax changes that could affect current tax planning.