Help to reduce your tax

Here’s a quick checklist to make it easy for you to decide if you need to take any action before the end of the tax year on 5 April. Reviewing your finances, especially following the changes announced in the Autumn Budget 2024, could make a real difference.

Your tax year end checklist

1. Your pension allowance – make the most of it

Take advantage of the £60,000 annual allowance for pension contributions.

Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax. You’ll only pay tax if you go above the annual allowance which is £60,000 this tax year, or 100% of your income if you earn less than £60,000.

You may also be able to ‘carry forward’ any unused allowance from the previous three tax years as well.

If you have accessed your pension or you have a high income, your allowance may be lower.

Given the income tax relief you get on the money you save into your pension, it provides one of the best ways to save for your retirement. Topping up your pension can result in a higher income when you retire, so it’s worth considering whether you should take action before 5 April. Remember, the value of your investment can go down as well as up so you might get back less than you put in.

And you could potentially reduce the amount of tax you may need to pay by saving more into your pension, especially if your salary or bonus will now cross into a higher tax band. For example, if you were to make a £5,000 gross pension contribution (£4,000 plus £1,000 tax relief) your ‘adjusted net income’ would reduce by £5,000, potentially avoiding a higher rate of tax.

You can make a gross pension contribution through your workplace pension scheme as your pension contributions are deducted from your pay before income tax. So, you get full tax relief and you could reduce your tax bill.

Alternatively, if you have a personal pension most providers will claim 20% tax relief for you and add it to your pension. Higher rate taxpayers will need to claim any additional tax relief either through self-assessment tax return or by contacting HMRC directly.

Proposed change to pensions from April 2027

The Chancellor announced in the Autumn Budget 2024 that most unspent pensions will be included as part of an estate for inheritance tax purposes, from April 2027. This change is significant as up till now it’s been possible to pass on personal pensions free from inheritance tax. The change is under a technical consultation by the government.

2. ISAs – use your allowance, or lose it

Putting money aside tax-efficiently in an ISA, is an easy way to make it work that bit harder as you won’t pay income tax or capital gains tax on any income. So if you’ve not used your £20,000 allowance this tax year, you may want to consider paying into your ISA before 5 April. Make the most of your annual allowance – use it or lose it.

You can invest in a stocks and shares ISA, a cash ISA, or both, providing the total amount doesn’t exceed the annual £20,000 allowance. The allowance remains at £20,000 for next tax year 2025/26. Of course, any money invested in a stocks and shares ISA should be money that you don’t need in the short term, typically the next five years. The value of your stocks and shares ISA can go down as well as up so you might get back less than you put in.

3. Are your savings working efficiently for you?

It makes sense to check your savings are earning as much interest as possible across both variable and fixed-term savings accounts.

Your personal savings allowance depends on your income tax band. Basic rate taxpayers can earn £1,000 of interest on their savings, whilst higher rate taxpayers can only earn £500 before paying tax. If you’re approaching the threshold you might want to consider moving some savings into an ISA – where you won’t pay income tax or capital gains tax on any interest earned.

4. Capital gains – £3,000 allowance plus increase to rates

Capital gains tax (CGT) has been reduced significantly over the past few years – from £12,300 in 2022/23 down to £3,000 this tax year. If you sell any investments, or property, apart from your main residence, you will need to pay CGT on anything over £3,000.

You may remember that the main rates of CGT changed on 30 October 2024 as part of the Autumn Budget announcement. The lower rate increased from 10% to 18% and the higher rate from 20% to 24%. All in all, a pretty unwelcome change especially as there wasn’t any advance notice to take any action.

Speak to your adviser if you want to look at how you could reduce the CGT you may have to pay so that it doesn’t negatively impact your longer-term plans.

5. Check if you have to pay tax on dividends – allowance now only £500

Payments from stocks and shares are usually in the form of dividends. You don’t pay tax on any dividend income that falls within your personal allowance – the amount of income you can earn each year without paying tax.

Each tax year you also get a dividend allowance, which has reduced from £2,000 in 2021 and is now only £500.

You need to pay tax on dividend income above this allowance. The tax you pay will depend on your income tax band.

Remember, you don’t pay tax on dividends from shares in an ISA.

If you think you may be affected by the dividend allowance reduction speak to your adviser to find out if there are options to reduce the tax you may have to pay.

6. Reduce your inheritance tax liability through gifts

If you’re looking to potentially reduce an inheritance tax liability, and at the same time help your loved ones, you could consider giving some gifts. It makes sense to maximise your gifting allowance each year – as these cash gifts won’t be included in your estate and eligible for inheritance tax.

You can gift £3,000 tax free per year. Or £6,000 in total, as a couple. And if you haven’t used last year’s gifting allowance you can gift £6,000 or £12,000 as a couple (carrying forward last year’s unused allowance).

Other gifts include:

• Small gifts up to £250 to as many people as you like each tax year, but not if they’ve received the £3,000 annual exemption
• Wedding gifts of up to £5,000 for children, £2,500 for grandchildren or great-grandchildren and £1,000 for anyone else, if made before the wedding
• Donations to charities like museums, universities or community amateur sports clubs, and political parties

For more information on the rules around gifting visit gov.uk/inheritance-tax/gifts

7. Make the most of your marriage allowance

If you’re married, and one of you is earning below the personal allowance (£12,570), you can consider applying for the marriage allowance. This allows the lower-earning partner to transfer £1,260 of their personal allowance to the higher earner, saving up to £252 in tax.

This information is based on our current understanding of taxation law and practice in the UK. Tax rules can change and the impact of taxation, and any tax relief, depends on your personal circumstances and where you live.

Tax year end planning can be quite complex, depending on your personal circumstances. Speak to a financial adviser if you’d like help to maximise your allowances and reduce the tax you may need to pay.