Tax Year 2024/25: Five Planning Tips from an Adviser
Avoid overpaying tax and explore 5 top tax saving tips, from a financial adviser, that could help you make the most of your money, by keeping more of it in your pocket.
Last Updated: 22 April 2024
Jamie Reid is a qualified Financial Planner who specialises in pensions and retirement planning, investment management, long-term care planning, estate planning and inheritance tax planning, trusts, and protection. Read his profile.
Tax allowances are there to be used, so why not use them?
Leveraging tax allowances effectively can lead to significant savings. In this article, I explore key areas of tax planning, providing essential tips to navigate the changes in the tax year 2024/25.
Adjustments to tax allowances need attention this year. Notably, the reduction in the dividend allowance from £1,000 to £500 and the halving of capital gains tax allowance to £3,000. These rule changes need proactive planning to mitigate potential impacts on your wealth. Here are my five tips to help maximise tax efficiency.
This article isn’t personal advice, if you’re not sure what’s right for you please ask for advice. Tax, ISA and pension rules can change and benefits depend on personal circumstances. Investments and any income from them can fall as well as rise in value so you could get back less than you invest.
Tip 1 - Maximise Your Income Tax Allowance as a Couple
Optimising your personal allowance is important. Consider transferring some Personal Allowance to your husband, wife or civil partner by using the ‘Marriage Allowance’.
To benefit as a couple, one partner normally needs to earn less than the other and have an income of £12,570 or less. The other partner's income must normally be between £12,571 and £50,270 (£43,662 in Scotland) for you to be eligible.
The lower earner can transfer up to £1,260 to a spouse, which can reduce a tax liability by up to £252.
Tip 2 - Make Use of Tax-Efficient ISAs
ISAs are fantastic saving and investing tools. They benefit from preferential tax treatment; no UK tax is paid on growth within an ISA and no tax is paid when making a withdrawal from an ISA.
Utilising tax-efficient vehicles like ISAs is paramount so try to maximise the current year's ISA allowance of £20,000. You can now contribute to multiple ISAs of the same type in the same tax year, and this could open a window of opportunity. For example, you can now hold multiple cash ISAs with multiple providers offering multiple rates and terms.
Tip 3 - Use Your Annual Capital Gains Tax Exemption
Capital gains tax (CGT) is the tax you usually pay on any profits you make when you sell an asset that’s increased in value, or you transfer it outside of your estate, for example to another person or into a trust. It most commonly applies to the sale of shares and second properties. It can be a nice problem to have. Ultimately, it means you’ve made a profit.
With the CGT allowance falling from £12,300 in 2022/23 to just £3,000 in this tax year, strategic asset transfers are essential.
You could consider transferring assets from accounts that are exposed to CGT (like a general investment account) to those that aren’t (such as ISAs and pensions). While ISA and pensions offer shelter from CGT, selling investments to move them into one could result in a capital gain or loss and government duties can apply to repurchase shares.
If you’re married or in a civil partnership, you could also consider optimising tax efficiency by transferring assets to your partner.
If your investment horizon would take you past your 55th birthday (or 57th birthday if this will be in 2028 or later), which is when you’re usually able to access money in a pension, and you’re under age 75, which is the age you stop qualifying for tax relief on pension contributions, transferring assets into a pension could result in a significant boost to your retirement savings.
Tip 4 - Maximise Pension Contributions and Utilise Carry Forward Rules
A pension is a wonderful savings vehicle for retirement. Maximising pension contributions within allowable limits is very advantageous because of the income tax relief. Currently, any personal contributions to a pension up to the amount you earn (or £3,600 if this is greater) allow you to claim back income tax at your highest rate. Please be aware, in some circumstances you’ll need to claim back higher rates of tax through a self-assessment.
It’s important to understand pension regulations and utilise carry forward allowances to optimise tax planning strategies. With the current pension rules, an annual allowance of £60,000 is available for most people including employer contributions and basic rate tax relief. And you can also carry forward any unused allowances from the previous 3 tax years (as long as you were a member of a registered pension).
More on pension carry forward rules
Tip 5 - Gift and Use Inheritance Tax Allowances
If you want to pass on as much wealth to your family as possible, Estate Planning and Inheritance Tax mitigation are vital aspects of financial planning. If you’re married or in a civil partnership, consider leveraging both partners' allowances to minimise inheritance tax liabilities. You need to understand the current nil rate band of £325,000 and residential nil rate band of £175,000 for effective tax planning.
If you do not want to leave your loved ones with a tax bill to pay, you need to plan effectively, and the earlier you start to do so, the better. It’s a complex area and if you think your estate could be liable to IHT it’s often one where receiving financial advice can add huge value.
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You won’t get personal advice on the call, but they’ll talk you through the advice service we offer, including charges and connect you with an adviser if you’d like to go ahead.
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Our advisers can recommend how you can make the most of your tax allowances through financial planning but if you need complex tax calculations your adviser may recommend that you speak to an accountant to complement their advice.
