With the countdown ticking to the start of the new tax year, international accounting and business advisory firm, BDO, has put together a list of the top 10 tax saving measures that people can take advantage of before this tax year ends on 5 April.
Elsa Littlewood, tax partner at BDO said: “Fiscal drag is pulling greater numbers of people into higher tax brackets, so understanding and taking advantage of available allowances and reliefs before the end of the tax year is more important than ever.
“There are some simple steps that anyone can take which could help them reduce their tax bill, retain entitlement to certain benefits, build their savings and enhance their pensions. For more complicated arrangements, it’s always a good idea to seek professional advice.”
1. Take advantage of tax-free pension contributions
The standard amount that an individual can set aside tax-free each year for a pension is £60,000 – and any unused relief in the prior three tax years can be brought forward. However, individuals with annual income exceeding £200,000 may have their pension annual allowance reduced so should take expert advice on maximising their pension contributions. Tax relief is further limited to relief on contributions up to the higher of 100% of your UK taxable earnings or £3,600.
Qualifying taxpayers who don’t receive full tax relief at source when contributing to their pension scheme should disclose their contributions in their annual tax return to receive a rebate at their marginal rate.
For those with large pension pots, the effective abolition of the IHT exemption from 6 April 2027 announced in the Autumn Budget 2024 should also be considered.
2. Boost your state pension by filling gaps in your national insurance record
You can usually pay voluntary National Insurance contributions for the past six years to fill gaps in your National Insurance record to boost your qualifying years that are used to calculate your State Pension entitlement. The deadline is 5 April each year.
However, there is currently an extended window allowing certain people: (men born after 5 April 1951 or women born after 5 April 1953) to pay voluntary contributions to fill gaps between 2006 and 2018. If you were born before these dates, you can fill gaps between 2016 and 2018.
3. Use your ISA allowances
UK residents aged 18+ can invest up to £20,000 each and parents can fund a junior ISA or child trust fund with up to £9,000 per child for 2024/25 – making a total of £58,000 for a family of four.
Children will automatically have access to the funds in their ISA when they reach age 18 but ISAs are a useful vehicle for building up funds to support them through higher education.
Investors who have not used up their full ISA allowance, should consider selling shares yielding dividends outside their ISA and buying them back within this tax-exempt wrapper, although care should be taken as this could trigger a capital gains tax charge.
4. Avoid the child benefit clawback
Child benefit is clawed back where annual taxable income (or the taxable income of a partner) exceeds £60,000 in the 2024/25 tax year (being completely repaid when income exceeds £80,000).
If both partners can keep their annual taxable income below £60,000, Child Benefit will not be clawed back through the High Income Child Benefit Charge at a rate of 1% of the benefit for every £200 of income over £60,000. When the salary of either partner reaches £80,000, the amount of tax charged will equal the amount of the child benefit payment.
Making personal pension contributions or exchanging salary in return for employer pension contributions can reduce your taxable income to keep it below the £60,000 threshold.
5. Use annual gains exemptions
Everyone can realise capital gains up to the annual exemption tax-free – £3,000 in 2024/25. The exemption is available to each individual, including minor children, but any exemption unused in a year cannot be carried forward. Married couples and civil partners can transfer assets between them on a no gain/no loss basis and such transfers should be considered to ensure that the annual exemption can be fully used.
6. Match capital gains and losses to reduce your tax bill
If you hold stocks and shares outside an ISA, selling them can trigger capital gains: where your total gains exceed the annual exemption (see above) you will pay tax on them. If you also have investments standing at a loss, selling the asset allows you to set that loss against any gains that are taxable – either in 2024/25 or in later years (provided you claim it through your tax return). So matching gains and losses can cut your overall tax bill.
If you think the loss-making shares had long term potential, you can’t buy back them back immediately (a 30 day matching rule applies) but you can buy alternative shares in companies in the same sector, or buy them through your ISA or your spouse could invest in them.
7. Own a company? Consider paying yourself a dividend
It can sometimes be more tax-efficient overall to withdraw profits from your company by way of dividends rather than salary payments for 2024/25 but this will depend on a number of factors (basic rate taxpayers are most likely to benefit). However, company owners should be aware that dividends are only possible if the company has sufficient ‘distributable reserves”. It should be noted that receiving dividend income does not allow the recipient to pay tax-deductible pension contributions. Of course, it should always be remembered that arranging for the company to pay pension contributions on your behalf is the most tax-efficient way to withdraw funds from the business.
8. Entrepreneur? Consider SEIS/EIS/VCT investments
The Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) all offer tax benefits, but are really only suitable for experienced business owners and investors.
Under the SEIS, an individual can invest up to £200,000 in 2024/25 in start-up enterprises in a tax year and claim income tax relief at 50% irrespective of his or her marginal rate of tax, up to a maximum of £100,000.
Investments in qualifying EIS companies (for example, certain companies listed on AIM or that are unlisted) attract income tax relief at 30% on a maximum annual investment of up to £1 million for qualifying individuals. This doubles to £2 million for investments into ‘Knowledge Intensive Companies’.
Investments in VCTs provide income tax relief at 30% on qualifying investments of up to £200,000 and dividends received from the units are tax-free. In addition, the VCT can buy and sell investments without suffering CGT within the trust and there is no CGT payable on any gain made when you sell the VCT units.
9. Make gifts to use annual IHT allowances
Reducing the value of the part of your estate that is above the nil rate band (£325,000) will reduce the IHT payable when you die.
Consider giving assets you do not need to other family members now. Gifts to a spouse or civil partner to enable them to use up their nil rate band are tax-free and gifts to other family members can also be tax-efficient over time.
Most lifetime gifts to individuals that are not covered by a lifetime exemption do not immediately trigger IHT and become totally exempt if you survive for seven years. Whilst the gift remains in your estate, the rate of IHT applied to it on death (40%) reduces each year depending on how many years you survive after making the gift.
You can give away up to £3,000 worth of gifts a year plus £250 to as many individuals as you like in a year and £5,000 to your children on their marriage.
10. Plan ahead for 2025-26
Plan ahead for 2025-26 by checking your tax codes. This can be done by logging into your personal tax account. Here you can inform HMRC about any changes that are likely to affect your tax code during the tax year. Helping HMRC to get it right from April onwards means you shouldn’t have any nasty surprises later.
