Preparing for the tax year-end

What should you do to ensure that you are prepared ahead of the Tax Year-End?

We are currently 6 weeks until Year-End. In this article we will discuss areas that you should be considering when making certain that your tax affairs are in order, ahead of the year-end which is soon approaching.

Pension contributions:Personal pension contributions can be offset against income in order to reduce any higher rate tax or made from your company on your behalf which is a deductible expense for corporation tax. Every individual has access to a pension contributions allowance of up to £60,000 per tax year, subject to income tapering restrictions. Once an individual has made contributions to a registered pension scheme, you can carry forward any unused annual pension contributions allowance into future tax years, for up to 3 years.

Capital invested in a pension is also free from tax on income, dividends and capital gains. Pensions are currently considered to be outside of your estate for Inheritance Tax (IHT) purposes. From April 2027, this tax treatment will end and thereafter pensions will be included in your IHT liability. Nonetheless, pensions will remain a tax-efficient means of saving for the future.

Charity donations:Making personal charitable donations before April 5th can help reduce the High Income Child Benefit Charge if your income exceeds £60,000. Additionally, charitable donations can help recover lost personal allowance for individuals earning over £100,000.

Contributions into ISAs:An Individual Savings Account (ISA) allows you to invest funds in a range of savings and investments and pay no tax on the income, dividends and capital gains. Each tax year, all adults in the UK receive an ISA allowance, which is currently £20,000. If you do not use this allowance, it cannot be carried forward into future tax years. In addition, all children under the age of 18 receive a Junior ISA allowance, which is currently £9,000. Like an adult ISA, a Junior ISA fully shelters savings from tax and the child will have full control over the account when they turn 18.

Declaring using dividends/tax allowances:Every individual has access to a tax-free dividend allowance, which cannot be carried forward into the following year. For the 2024/25 tax year, the tax-free dividend allowance has been reduced to £500 and is not liable to tax regardless of the amount of non-dividend income received from sources such as salary, rental income, and bank interest. If you are a shareholder or director of a company, it’s important that you look to take advantage of your tax-free and lower rate tax allowances.

Every person has a personal tax allowance of £12,570 in addition to their dividend allowance of £500 which is taxable at 0%; dividend income above this amount up to the limit of the Basic Rate tax band of £50,270 is taxable at only 8.75%. Income up to £100,000 sees paying some higher rate of dividend tax at 33.75% but preserves your personal tax allowance. Even if you don’t require funds in that year, it’s still advisable to declare a dividend for the full amount of the basic rate band, building up your loan account in the business at favourable tax rates, which can be drawn down tax-free in the future.

These low tax rates are also available to other family members, but make sure you take appropriate advice in order to make sure the whole family is benefitting from their tax allowances.

Use your annual Capital Gains Tax (CGT) exemption:Use your annual Capital Gains Tax (CGT) exemption Capital Gains Tax (CGT) is the tax that you pay when disposing of certain assets for a profit. You have an annual CGT exemption of £3,000 in the 2024/25 tax year that can be used to offset some (or all) of the capital gains arising on such assets. You can make use of your CGT exemption for the current and next tax year by disposing of assets in two tranches: one before 06 April 2025 and another in the new tax year.

Use the annual gift exemption for Inheritance Tax:Inheritance Tax (IHT) is a tax on assets that you leave behind when you die and on some gifts that you make during your lifetime. One way to gradually reduce your potential IHT liability is to make use of your annual gift exemption. You are permitted to gift up to £3,000 each year and these gifts are outside of your estate for IHT purposes immediately.

For couples, this means that you can gift a total of £6,000 each year and, if you have not used your exemption for the previous tax year, you can carry this forward for one tax year making the total amount you can gift £12,000. You can also make gifts of up to £250 to as many people as you want in the tax year provided you have not used the annual exemption on the same person.

Consider boosting your State Pension:To be eligible for the full amount of State Pension you need to have made National Insurance (NI) contributions for 35 years. If you aren’t on track to get the full State Pension, it’s currently possible to buy top-ups. It’s worth considering for anyone aged 45-70 and more detail is here. The deadline for this is 5 April 2025.

Click here to view a summary of the key tax changes ahead

Tax affairs are complicated and we would always advise you to speak with your advisers before making any changes. For more information on how we can help you and your business, please contact us via email or call and we will be happy to advise on the best solutions for your business.

Please note: This article is provided for information only and was correct as at the time of writing (20/02/25). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.