Year-End Tax Planning – There’s Still Time!

2024/25 Tax Year End Planning: Essential Strategies to Maximise Your Savings

At TAG Accountants, we are dedicated to helping our clients effectively manage and minimise their tax liabilities. While it is universally accepted that everyone has a responsibility to contribute their fair share of tax, it is only sensible to ensure that you are not paying more than is necessary. This consideration is particularly important given the increasingly heavy tax burdens many individuals and businesses currently face.

As the end of the tax year draws closer, it is an ideal time to carefully review your financial position and ensure you are making full use of the various tax reliefs and allowances available. Taking proactive steps now could help you retain more of your hard-earned income.

If you would benefit from a thorough tax review or professional guidance, our expert tax team is readily available to provide tailored advice and support.

Savings – using your ISA allowances to maximise tax free return

If you have surplus funds available, it is worth considering making full use of your ISA allowances for the 2024/25 tax year, which currently stands at £20,000 per person. This is a valuable opportunity to shelter your savings or investments from tax, and making the most of it each year can significantly improve your financial position over time.

For those aged 18 or over but under 40, Lifetime ISAs remain an excellent option for saving towards either your first home or your retirement. Keep in mind that you can contribute up to £4,000 annually until the age of 50, but it is crucial to make your first payment before you turn 40 to qualify.

One of the standout advantages of the Lifetime ISA is the 25% government bonus added to your savings. This means that by contributing the full £4,000 in a year, you could receive an additional £1,000 as a government top-up. However, it is important to note that this £4,000 limit is part of the overall £20,000 annual ISA allowance. Taking these factors into account and planning carefully can help you make the most of these valuable savings’ opportunities.

Pension planning – increasing contributions and keeping personal allowance

An increasingly popular way to reduce your tax liability while planning for a secure financial future is to increase your pension contributions before the 5th of April 2025.

Under current rules, when making personal pension contributions, the government enhances your contributions at the basic tax rate of 20%. For example, if you contribute £4,000 to your personal pension, the government adds £1,000, bringing the total contribution to £5,000. If you are a higher-rate taxpayer, you can claim an additional £1,000 in tax relief when your tax liability is calculated, effectively lowering your net contribution to £3,000.

This strategy becomes particularly worthwhile for those with income exceeding £100,000, as earnings above this threshold result in a tapering of your £12,570 personal allowance. For every £2 of taxable income above £100,000, your personal allowance is reduced by £1, reducing it to zero at £125,140 or more. This creates an effective tax rate of 60% on earnings within this bracket. Making additional pension contributions can lower your net income, helping to mitigate the reduction of your personal allowance, effectively delivering a 60% tax saving for income within this range.

Furthermore, it may be worth exploring a salary sacrifice arrangement with your employer, where part of your salary is redirected into pension contributions. This can generate National Insurance savings for both you and your employer, making it a highly tax-efficient approach to pension planning.

Capital Gains Tax (CGT) planning – accelerating disposals to use annual allowance or BAD relief 10% rate

You may wish to consider realising capital gains before 6 April 2025 if you have not yet utilised your £3,000 Capital Gains Tax (CGT) annual exemption for the 2024/25 tax year. This could help minimise your overall tax liability.

If you are planning to sell your business and intend to claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), it would be prudent to aim for completion before the end of the 2024/25 tax year. From April 2025, the tax rate on qualifying gains is set to rise from 10% to 14%. This change could potentially increase your CGT liability by as much as £40,000, making it worthwhile to act sooner rather than later if feasible.

Capital Allowances – for March year ends accelerate capital expenditure to reduce taxable profit

Unless your business year-end falls on 31 March or 5 April, the end of the tax year is not a particularly significant date for claiming capital allowances. These allowances apply to capital expenditure on plant and equipment, but the costs must be incurred by the close of the relevant accounting period.

Both limited companies and unincorporated businesses can claim a 100% deduction for the first £1 million spent on new or used equipment over a 12-month period through the “Annual Investment Allowance” (AIA). However, it is important to note that this allowance does not extend to motor vehicles. That said, a special 100% tax relief is available for the purchase of new zero-emission cars.

If equipment is acquired under a hire purchase agreement, capital allowances can be claimed on the full cost of the asset, provided it has been brought into use before the end of the accounting period, even if the payments are made over time. This provision does not apply to contract hire arrangements, although tax relief can still be claimed on the rental payments.

Paying Voluntary National Insurance Contributions to get full state pension entitlement

To receive the full State Pension upon retirement, an individual must have 35 ‘qualifying years’ of National Insurance Contributions (NICs). For those with gaps in their contribution record—often due to insufficient NIC payments—it is possible to fill these gaps by making Class 3 (Voluntary) NIC payments, currently set at £17.45 per week, rising to £17.75 for the 2025/26 tax year.

Ordinarily, you can only make Class 3 contributions for the past six tax years. However, a temporary extension is in place until 6 April 2025, allowing taxpayers to make backdated payments for tax years dating as far back as 2006.

If you believe you may not reach the required 35 qualifying years by your intended retirement date, it would be wise to consider making these voluntary payments before this window of opportunity closes. Doing so could help secure your entitlement to the full State Pension and potentially increase your long-term financial security in retirement.

Stamp Duty Land Tax – accelerate purchase before thresholds reduce to save tax

Stamp Duty Land Tax (SDLT) applies to property purchases in England and Northern Ireland. The current SDLT nil-rate thresholds, outlined below, are scheduled to return to their previous levels on 1 April 2025.

If you are in the process of purchasing a property, it may be worth considering bringing forward the completion date to potentially reduce your SDLT liability and make a valuable saving.

Furnished Holiday Lettings – accelerate disposal or improvements to get tax savings

A friendly reminder that Furnished Holiday Letting (FHL) status will be abolished from 6 April 2025, bringing an end to the favourable tax treatment that property owners in this sector have enjoyed.

If you own an FHL property and are considering exiting this market in the near future, it may be worth contemplating ceasing your FHL trade before 6 April 2025. Doing so would allow you to retain the right to claim Business Asset Disposal Relief on the disposal, provided it takes place within the usual three-year window following cessation.

For those planning to continue operating their property as a holiday let, it is worth noting that capital allowances can still be claimed for qualifying expenditure on FHL properties up until 6 April 2025. This creates an incentive to bring forward any planned improvements to your property before the deadline.

At TAG Accountants, we are here to support you with your tax planning needs. To learn more about the high level of service we provide, feel free to visit our testimonials page to see what our clients have to say about us.

Legitimate tax planning is still worthwhile

There are still numerous legitimate ways for taxpayers to reduce their tax liabilities.

If you would like a comprehensive review of your financial affairs to ensure you are fully utilising the available reliefs and allowances, or if you have any questions or concerns, we invite you to arrange a meeting with one of the tax experts at TAG Accountants Group by calling 01902 783172. Alternatively, you can contact us by completing the online enquiry form HERE.

We look forward to hearing from you and assisting with your tax planning needs.