As the 2024/25 tax year draws to a close, now is the perfect time to review your finances and ensure you’re making the most of available tax reliefs. The UK tax system offers several ways to legally reduce your tax bill, but many of these opportunities expire at the end of the tax year on 5 April 2025. Here’s how you can take advantage of them before it’s too late.
1. Maximise Your Pension Contributions
Pension contributions are one of the most effective ways to reduce your tax bill. Contributions to registered pension schemes attract tax relief at your highest rate of income tax. The annual allowance for 2024/25 is £60,000 (or 100% of your earnings, whichever is lower), but if you have unused allowances from the previous three years, you may be able to carry them forward.
For higher and additional rate taxpayers, pension contributions can significantly reduce your taxable income and potentially bring you below key tax thresholds, such as the £100,000 income level where the personal allowance starts to taper.
2. Use Your ISA Allowance
Individual Savings Accounts (ISAs) allow you to save tax-free, and the annual allowance for 2024/25 remains at £20,000. This can be split between a Cash ISA, a Stocks and Shares ISA, an Innovative Finance ISA, and a Lifetime ISA (with a £4,000 limit).
By using your full allowance before 5 April, you shield your savings from income tax and capital gains tax (CGT), making ISAs a key tool for tax-efficient saving.
3. Capital Gains Tax (CGT) Allowance
For 2024/25, the CGT annual exempt amount is just £3,000 per individual. Any gains above this threshold are taxed at 10% for basic rate taxpayers and 20% for higher rate taxpayers (or 18% and 24% for residential property gains, respectively).
To avoid unnecessary tax liabilities, consider selling assets strategically, making use of your spouse’s allowance, or reinvesting gains into tax-efficient wrappers like ISAs or pensions.
4. Utilise Your Personal Savings Allowance and Dividend Allowance
Basic rate taxpayers have a £1,000 personal savings allowance, while higher rate taxpayers have £500 (additional rate taxpayers get none). The dividend allowance remains at £500, meaning you can earn up to this amount in dividends tax-free.
If you have savings or investments, structuring them correctly can help you make the most of these allowances and avoid paying unnecessary tax.
5. Consider Gift Aid Donations
Charitable donations via Gift Aid allow charities to claim an extra 25% on your donation, and if you’re a higher or additional rate taxpayer, you can claim tax relief on your donation. This can also help bring your taxable income down if you’re near key tax thresholds.
6. Inheritance Tax (IHT) Planning
Each individual has an annual gift allowance of £3,000, which can be given away without being added to the value of their estate for IHT purposes. If you haven’t used your allowance from 2023/24, you can carry it forward, allowing you to gift up to £6,000 tax-free.
Larger gifts can also be made but may be subject to the seven-year rule, meaning they must be given at least seven years before your passing to be exempt from IHT.
7. Take Advantage of Business Tax Reliefs
If you run a business, consider making capital investments before the tax year-end to benefit from the Annual Investment Allowance (AIA), which allows businesses to deduct 100% of qualifying capital expenditure up to £1 million from taxable profits.
Additionally, if you’re a limited company director, reviewing salary and dividend structures before the end of the tax year could help you optimise tax efficiency.
Final Thoughts
Tax reliefs can provide significant savings, but many are lost if not used before 5 April 2025. A proactive review of your finances now can help you take full advantage of the allowances and incentives available. If you need guidance on making the most of your tax reliefs, consider giving us a call.
Don’t leave it too late—act now to make your money work smarter for you!
