As the end of the tax year (5 April 2025) quickly approaches, it’s important to remember the financial actions that could help you maximise tax-efficiency, utilise allowances, and help grow closer towards your goals. Below, we have highlighted some key areas to consider.
With most allowances, it’s important to note that they operate on a ‘use it or lose it’ basis and any unused portion does not carry forward to future tax years, unless otherwise stated.
1. Maximise Your ISA (Individual Savings Accounts) Contributions
ISAs remain one of the most tax-efficient ways to save and invest. For the tax year 2024/25, the annual ISA allowance is £20,000 and will remain the same next tax year. This means you can contribute up to £20,000 into your ISAs and any growth, dividends, or interest earned will be free from income tax or capital gains tax.
Changes to legislation in April 2024 now means it’s possible to subscribe to multiple ISAs of the same type (excluding Lifetime and Junior ISAs) meaning you could split your £20,000 subscription between two different banks/investment providers. For example, a £12,000 Stocks and Shares ISA subscription with Provider A and an £8,000 Stocks and Shares ISA subscription with Provider B.
Some providers offer a ‘flexible ISA’. This variation is becoming more mainstream and allows the account holder to withdraw any amount of their cash from the account and repay it before the end of the tax year without utilising any of their £20,000 allowance. If you have a flexible ISA, have taken a withdrawal, and plan to repay it, please review your position and ensure you act before 5 April 2025.
In applicable situations, where we manage client money on a discretionary basis, we will transfer up to £20,000 (or more where this is a flexible ISA) from a client’s tax-exposed investment account into their Stocks and Shares ISA on their behalf. For advisory portfolios, we will contact clients before utilising their ISA allowance.
2. Utilise Your Capital Gains Tax (CGT) Exemption
Each individual has an annual exemption of £3,000 for CGT in the 2024/25 tax year and this allowance is set to remain the same next tax year. This means that you can realise up to £3,000 of gains without incurring CGT. If you have investments outside of tax-efficient wrappers such as pensions and ISAs (most commonly this could be a General Investment Account (GIA)) it may be worth reviewing your portfolio and realising any gains up to this amount.
If you have investments outside of ISAs or pensions, consider selling assets up to your CGT exemption limit to reduce your potential tax liability.
On a best endeavours basis, where we manage client money on a discretionary basis, we try to utilise a client’s CGT exemption where relevant and beneficial. For advisory portfolios, we will contact clients before undertaking any CGT planning work.
3. Make the Most of Your Inheritance Tax (IHT) Gifting Allowances
IHT planning is an important consideration for individuals with assets above the IHT threshold/s. The annual gift exemption allows you to gift up to £3,000 per tax year without it being counted as part of your estate for IHT purposes and therefore the donor is not required to survive seven years before the value exits their estate. If you haven’t used the previous year’s £3,000 allowance, you can carry it forward and gift a total of £6,000.
Additionally, there are exemptions for gifts made for weddings or civil ceremonies, as well as gifts to charities and where regular gifts are made from surplus income.
4. Pension Contributions – Maximise Tax Relief
Making contributions to your pension can reduce your taxable income, allowing you to benefit from tax relief. For the 2024/25 tax year, the annual contribution limit for pensions is £60,000 (or 100% of your earnings if lower), but it is also possible to carry forward unused allowances from the previous three tax years too. Contributions made before the end of the tax year will not only provide potential for long-term growth but will also reduce your current taxable income.
Reducing taxable income can help in a number of different situations. For example, reducing earnings below £60,000 to prevent a High Income Child Benefit Charge (claw back of benefit received), or, reducing earnings below £100,000 to avoid an abatement of your personal allowance which would result in an effective tax rate of 60% (‘60% tax trap’).
5. Charitable Donations – Gift Aid Contributions
Making charitable donations through Gift Aid remains an excellent way to reduce your taxable income and support causes important to you.
Donations made before 5 April 2025 can be deducted from your income for tax purposes, and for higher or additional rate taxpayers, this can lead to significant tax savings.
If you’re planning to make charitable donations, ensure you make them before the end of the tax year to receive the associated tax relief.
6. Possible Use of Specialist Tax-Advantaged Investments
Certain investments, such as those made in Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS), or Seed Enterprise Investment Schemes (SEIS), offer significant tax relief opportunities. These schemes can provide income tax relief, CGT deferrals, and the potential for tax-free growth. However, these types of investments carry risk, so they may not be suitable for all investors.
If you’re a high net worth individual and have utilised your pension annual allowance and ISA allowance these types of investments could be worth considering.
Conclusion: Act Now
As you can see, there are a number of steps you can take before the end of the tax year to maximise your financial position. Each action mentioned above can help you reduce your tax bill, grow your wealth in a tax-efficient manner, and ultimately improve your financial security.
If you need assistance in reviewing your options or taking action before the tax year end, please do get in touch with us. We would be happy to help ensure you are making the most of the opportunities available to you.