Make Your Money Work Harder

Make Your Money Work Harder: Smart Tax Strategies Before the Tax Year Ends

Time is running out to review your financial plans and fully capitalise on tax-saving opportunities before the UK tax year ends on 5 April 2025.

Managing your wealth efficiently requires an ongoing assessment of your tax obligations, investment opportunities, and pension contributions.

A proactive review of your personal tax position now can help you reduce liabilities, maximise reliefs, and ensure your money is working as hard as possible. Here’s what you need to consider before the tax year resets.

Why Reviewing Your Tax Position Before 5 April is Essential

The UK tax system resets each year on 6 April, meaning a new cycle of tax allowances, pension contributions, and investment limits. If you don’t use certain allowances before the deadline, they are lost forever.

Taking action now ensures you optimise your wealth and avoid unnecessary tax bills.

Key Areas to Review Before the Tax Year Ends

1. Maximise Your ISA Allowance (£20,000 Per Person)

Individual Savings Accounts (ISAs) allow you to invest or save tax-free, making them one of the most efficient investment vehicles available. For the 2024/25 tax year, the annual ISA allowance remains £20,000 per person.

Why it matters: Any unused ISA allowance does not roll over. If you don’t use it, you lose it.
Example: A couple can shield £40,000 from tax by fully utilising their allowances before 5 April.
Consider Stocks & Shares ISAs: Long-term investors could benefit from tax-free capital gains and dividend income, particularly given the reduction in the Capital Gains Tax (CGT) allowance in recent years.

2. Use Your Capital Gains Tax Allowance (£3,000 for 2024/25)

The CGT annual exemption has dropped to £3,000, meaning more people are liable for tax on investment gains. Planning ahead can help reduce your exposure to unnecessary tax.

Why it matters: If you have investments outside an ISA or pension, selling strategically before the tax year ends can help you stay within the exemption.
Example: If you have a portfolio with £10,000 of gains, selling £3,000 worth of assets before 5 April ensures that part of the gain is tax-free. You can then realise further gains in the next tax year.
Use Spousal Transfers: Transfers between spouses are tax-free, meaning a couple can utilise a total exemption of £6,000 by spreading gains between both partners.

3. Boost Your Pension Contributions (Up to £60,000 Per Year)

Pensions remain one of the most tax-efficient ways to save for the future. Contributions receive tax relief at your highest rate, making it a powerful tool for reducing tax liabilities.

Why it matters: The annual pension allowance for 2024/25 is £60,000, and contributions reduce your taxable income.
Example: A higher-rate taxpayer contributing £8,000 into a pension receives an additional £2,000 in tax relief, turning their investment into £10,000 instantly. They can also claim further relief via their Self Assessment tax return.
Carry Forward Unused Allowances: If you haven’t used the full £60,000 in previous years, you may be able to carry forward allowances from the past three tax years.

4. Reduce Your Inheritance Tax (IHT) Liability

Inheritance Tax (IHT) is charged at 40% on estates over the £325,000 threshold (or £500,000 if passing a home to direct descendants). Proactive planning can help protect more of your wealth for future generations.

Why it matters: Gifting assets early can reduce your IHT exposure significantly.
Example: You can give away £3,000 per year tax-free, and this allowance can be carried forward one year. Additionally, small gifts of £250 per recipient are completely tax-free.
Consider Trusts: Placing assets in a trust can help manage tax liabilities and protect wealth for your heirs.

5. Take Advantage of Dividend and Savings Allowances

The Dividend Allowance has been cut to £500, meaning many investors will now face tax on dividend income. Similarly, the Personal Savings Allowance remains £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.

Why it matters: If your dividend income or savings interest exceeds these limits, you may need to restructure investments to be more tax-efficient.
Example: Moving dividend-paying investments into an ISA or pension can shield them from tax, while bonds or premium bonds can offer tax-free interest.

Don’t Leave it Too Late – Act Now

The 5 April deadline is fast approaching, and taking action now could help you make significant savings and maximise your investments. Failing to use your allowances means missing out on valuable tax efficiencies that could strengthen your long-term financial security.