Tick your way into a successful tax year end
After the Labour government took charge and announced a series of measures affecting taxpayers, it’s become more important than ever to assess your financial goals and check whether you’re on track for the retirement of your dreams.
Ahead of the new tax year, we’ve highlighted the most important aspects to consider and compiled a small tax year end checklist. In this list we explore some of the most important tax benefits to make use of before the 2024/25 tax year end deadline.
Tax year end in a nutshell
When?
Tax years run from 6 April to 5 April the following year. So, remember tax year planning isn’t just for March, it should start on 6 April. However, if you’re planning on making any transactions before the 2024/25 tax year end, please note 5 April falls on a Saturday – so do ensure you complete your plans ahead of the deadline.
Why is it important?
Every tax year you have valuable allowance available, which reset every tax year. It’s important to note that tax rules can change, depending on government rules and the individual.
What should I do?
Each step makes the journey. Making use of your tax allowances every year is an extremely efficient way to ensure you’re making the most of your finances in the long term. Our short checklist below should help you understand if you’re making the most of your allowances.
Your tax year end checklist
ISA allowances used?
Your individual savings allowance (ISA) is the best place to start your checklist. Anything you place in an ISA (capped at £20,000 per tax year according to rules at the time of writing) is sheltered from tax. This means no tax on income, dividend or capital gains.
Pension contributions topped up?
Your pension annual allowance (i.e., the amount you are allowed to place into your pension before it is subject to taxation) depends on your annual income, and is typically £60,000 per tax year. Higher earners, whose threshold income is £200,000+ or whose adjusted income is £260,000+, are subject to tapering, with every £2 of adjusted income over £260,000 reducing the allowance by £1. The reduced annual allowance is capped at a minimum of £10,000.
If you haven’t used previous years’ allowances in full, you could carry forward previous allowances from the three previous tax years.
Inheritance tax and your estate
As part of the Budget last year, the Labour government proposed (subject to consultation) to include an individual’s pension pot into the value of their estate, starting 2027. This measure could create a larger inheritance tax burden on individuals.
Needless to say, increasing the value of your estate means more tax being payable to the government. There are, however, financial strategies available to everyone that could be deployed to minimise the impact of this new measure, the complexity of which depends on an individual’s financial circumstances.
If you’d like to discuss how your pension contributions could impact your inheritance tax and the best strategies to minimise this burden, talk to us.
Have you used your capital gains tax allowances?
The annual exempt amount – or the tax-free amount on capital gains – is £3,000 for year 2024/25. Capital gains are realised on the sale of assets and investments, but not on certain assets including your main property.
There are strategies that you could implement to reduce your tax bill, such as gifting of your assets to a spouse/civil partner (with available allowances or a lower tax rate) or a charity, or deducting losses or claiming reliefs. If you’d like any help optimising your capital gains tax utilisation, get in touch with us.
Feeling generous? Last-minute gifts
The government allows you to make money contributions up to £3,000 (your annual exemption) per financial year free of tax.
This is particularly advantageous if you’re thinking about succession and plan on reducing the size of your estate. Note that gifts above this threshold may be subject to inheritance tax if given up to seven years before you pass away.
Remember: there is no inheritance tax for gifts between spouses and civil partners. The optimal financial plan will take an individual’s marital status into account.
You can carry your unused annual exemption forward to the next tax year, for one tax year only, if you haven’t fully used it.
Protecting your family
There are other ways of gifting to your family without adding to the value of your estate. If you have any children or grandchildren, it’s worth considering making contributions to your children’s ISAs or your grandchildren’s Junior ISAs.
Like ISAs, Junior ISAs are shielded from capital gains or any other types of tax. Junior ISAs are limited to contributions of £9,000 per tax year per individual, and anyone can pay into them.
Happy about your financial position?
While this question is not particularly pressing at a specific point in time, the tax year end is a pertinent time to think about whether you’re on track to meet your financial goals.
Even though the journey is different for all our clients, most of them are looking for reassurance on the same three questions.
- Am I on track to enjoy my retirement my way, and is it tax-efficient?
- Will my money last the distance?
- Is my family financially comfortable now, and will it remain so after I pass away?
To be best prepared for financial success, the secret is to start your journey as early as you can.
At 7IM, we have been helping individuals and their multi-generational families secure the retirement of their dreams and plan for succession. If you would like to chat to us about whether you’re on track to meet your goals, don’t hesitate to get in touch.
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