As I am sure you know the tax year runs from 6 April to 5 April each year, and as the end of the tax year approaches, individuals and businesses should consider their financial position to take advantage of available tax reliefs and allowances. Effective tax planning can help reduce tax liabilities and maximise savings. Here is a guide to some key areas to consider before the tax year ends.

Utilise Your Personal Allowance

Every individual has a tax-free personal allowance, which for the 2024/25 tax year is up to £12,570. If your income exceeds this threshold, you may want to consider ways to reduce taxable income, such as making pension contributions or charitable donations.

Maximise ISA Contributions

Individual Savings Accounts (ISAs) offer tax-free returns on savings and investments. The annual ISA allowance for the 2024/25 tax year is £20,000. If you haven’t yet maximised your ISA contributions, it’s worth considering, as unused allowance cannot be carried forward to the next tax year.

Pension Contributions and Tax Relief

Pension contributions are one of the most tax-efficient ways to save for the future. Contributions up to £60,000 (or 100% of your earnings, whichever is lower) may be eligible for tax relief. Higher earners should also review their pension annual allowance tapering and consider making contributions before the end of the tax year.

VCT investment

Venture Capital Trust (VCT) investment provides 30% income tax relief, tax free growth and tax-free dividends. The VCT must be retained for five years to retain the initial tax relief but can then be sold tax free. Caution needs to be applied as the underlying investments are deemed high risk, but as part of an objective driven financial plan these can be very useful investment structures.

EIS investment

Enterprise Investment Scheme (EIS) investment as with VCTs provides initial 30% income tax relief. An EIS also provides capital gains tax rollover relief (offset capital gains) either in the current or the previous tax year. The investment must be held for a minimum three years to retain the tax reliefs. These are high risk and illiquid investments until maturity so should only be used only by clients with an appetite for risk and who can make use of all of the tax incentives. Should the EIS investment fail loss relief against income tax can also be claimed.

Capital Gains Tax (CGT) Planning

The annual CGT exemption for individuals in 2024/25 is £3,000. If you are planning to dispose of assets, such as shares or property, it may be beneficial to do so before 5 April to utilise the exemption. Spouses and civil partners can transfer assets between them tax-free, potentially doubling the CGT exemption.

Dividend Allowance

The dividend allowance for 2024/25 is £500, meaning dividends received up to this amount are tax-free. If you have investments that generate dividends, ensure you make the most of this allowance before it reduces further in the 2024/25 tax year.

Inheritance Tax (IHT) Planning

Gifting can be a tax-efficient way to reduce your IHT liability. You can give away up to £3,000 per year free of IHT, and any unused allowance from the previous tax year can be carried forward. Additionally, small gifts of up to £250 per person are exempt.

Business Tax Planning

Business owners should ensure they are maximising reliefs such as the Annual Investment Allowance (AIA), currently set at £1 million, which allows businesses to deduct the full cost of qualifying plant and machinery purchases. Also, consider whether any capital expenditure should be made before the tax year end.

Review Your Tax Code

Check that your tax code is correct to avoid overpaying tax. This can be particularly important if you have changed jobs or received additional sources of income.

Conclusion

Proactive tax year-end planning can result in significant savings. However, the key is to integrate these opportunities within a bespoke objective driven financial plan. Ensuring that you take advantage of available allowances and reliefs is a key part of protecting and growing your wealth. Don’t leave it until the last minute – take action before 5 April to optimise your financial position with WKM Wealth and continue to #enjoy the journey