Maximising Your Investments Before the End of the Tax Year 2024/25
The UK tax year runs from 6 April to 5 April the following year. As we approach the end of the 2024/25 tax year, it’s essential to take full advantage of tax-saving opportunities.
Many of these allowances are on a ‘use it or lose it’ basis, so once the deadline passes, they cannot be reclaimed.
Acting now can help you reduce your tax liability and boost your long-term financial security.
In this article, we break down key strategies to ensure you make the most of your money before 5 April 2025.
Strategic Wealth Planning: Prepare for the Great Wealth Transfer
The UK is experiencing a historic intergenerational wealth transfer, with trillions expected to pass between generations. However, many families are unprepared, which can lead to unnecessary tax burdens and mismanaged inheritances.
Key considerations for wealth planning:
- Inheritance Tax (IHT) planning – The nil-rate band remains at £325,000, with an additional residence nil-rate band of £175,000 when passing down a home to direct descendants. Any amount exceeding these thresholds is taxed at 40%.
- Trusts and gifting – Placing assets into a trust or making use of gifting allowances can help mitigate IHT liabilities.
- Business Relief investments – Certain investments qualify for IHT relief after just two years, potentially reducing the taxable estate significantly.
Without planning, families may end up losing a large portion of their wealth to tax. Taking early action allows for greater flexibility in managing your financial legacy.
Maximise Pension Contributions for Long-Term Tax Efficiency
Pensions remain one of the most tax-efficient ways to save for retirement. Contributions benefit from generous tax relief, making them an attractive option for long-term financial security.
How to make the most of your pension before 5 April 2025:
- Tax relief at your highest rate – Basic-rate taxpayers receive 20% relief, while higher and additional-rate taxpayers receive 40% and 45% relief respectively.
- SIPPs (Self-Invested Personal Pensions) – These allow investors to choose from a wide range of assets, providing flexibility and control over retirement savings.
- Avoid the 60% tax trap – If you earn between £100,000 and £125,140, pension contributions can bring your income below this threshold, helping you regain your Personal Allowance and lower your tax bill.
- Carry forward unused allowances – You may still be able to contribute up to £180,000 by using unused allowances from the previous three tax years.
Maximising pension contributions before the tax year ends can significantly boost your retirement savings and tax efficiency.
Avoid the 60% Tax Trap
The highest official Income Tax rate in England, Wales, and Northern Ireland is 45% for earnings above £125,140. However, some individuals effectively pay an Income Tax rate of 60% on part of their income.
Why does this happen?
- If you earn over £100,000, your Personal Allowance (£12,570) is gradually withdrawn.
- For every £2 earned over £100,000, £1 of the allowance is lost.
- This creates an effective tax rate of 60% on earnings between £100,000 and £125,140.
How to avoid it:
- Make additional pension contributions – Reducing your taxable income below £100,000 helps regain your Personal Allowance.
- Donate to charity – Using Gift Aid allows you to extend tax relief while supporting a good cause.
These strategies can help lower your tax burden and increase overall savings.
Maximise Your ISA Allowance – Tax-Free Growth and Withdrawals
ISAs (Individual Savings Accounts) offer tax-free investment growth and withdrawals, making them an essential part of a tax-efficient investment strategy.
How to optimise your ISA before the tax year ends:
- The ISA allowance for 2024/25 is £20,000 per individual.
- You can invest in a Stocks & Shares ISA, Cash ISA, Lifetime ISA, or Innovative Finance ISA.
- All income and capital gains within an ISA are completely tax-free.
- A higher-rate taxpayer investing £20,000 per year in a Stocks & Shares ISA over 20 years could build a significant tax-free portfolio.
ISAs provide a simple, hassle-free way to shelter investments from tax, so ensuring you use your full allowance before 5 April 2025 is crucial.
Final Thoughts – Act Now to Optimise Your Tax Efficiency
With the 5 April 2025 deadline fast approaching, taking action now can help you:
- Reduce your tax liability.
- Boost your retirement savings.
- Maximise tax-free investment opportunities.
- Effectively plan your wealth transfer
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