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As the year ends, planning your taxes can improve your financial situation. By reviewing 10-Year End Tax Planning Tips, you can maximise your deductions, get tax reliefs, and boost your tax efficiency.
1. Use Your Dividend Allowance
Dividends are a common form of income for many, and the UK tax system treats them in a tax-efficient manner. For the 2024/25 tax year, the dividend allowance stands at £500, which means you can receive this amount tax-free. Tax is only payable on dividend income above this threshold, with rates of 8.75% for basic rate taxpayers, 33.75% for higher rates, and 39.35% for additional rate taxpayers. By optimising your dividend allowance, you effectively increase your tax-free income and reduce the overall tax burden.
2. Utilise Your Capital Gains Tax Annual Exemption
When you sell assets like shares or property that aren’t your main home, you may have to pay Capital Gains Tax (CGT). You can make gains up to £3,000 each year without paying tax, thanks to the annual CGT exemption. However, if you do not use all of this exemption, you cannot carry the unused amount to the next year. To manage and potentially lower your CGT payments, plan your asset sales carefully, especially since CGT rates have recently increased.
3. Benefit from the Personal Savings Allowance
If you earn interest from savings, you could take advantage of the Personal Savings Allowance. For basic rate taxpayers, this allowance is £1,000, while higher rate taxpayers receive £500. Additional rate taxpayers do not receive any allowance. Moreover, if your income is below £17,570, you might be eligible for the starting rate of savings, which allows up to £5,000 of interest to be tax-free. Making full use of these allowances can boost your tax-free savings income.
4. Maximise Your ISA Allowance
Individual Savings Accounts (ISAs) are a fantastic way to save without paying tax on interest. The annual ISA allowance is £20,000, and it covers all types of ISAs, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs. For younger savers aged 18–39 aiming to buy their first home or save for the future, the Lifetime ISA offers an additional benefit with a maximum contribution of £4,000 per year. There are also junior ISAs for children, with an annual limit of £9,000. Fully utilising your ISA allowance is a key step in reducing your taxable income.
5. Make Pension Contributions
Saving for your pension helps secure your future and gives you tax benefits right now. If you pay basic rate tax, you gain 20% tax relief on your personal pension contributions. For example, if you put in £80, the government adds £20. If you’re a higher or additional rate taxpayer, you may get even more relief. Make sure to watch the annual pension allowance, which is the most you can contribute without facing a tax charge. This approach can effectively reduce your taxable income while you prepare for retirement.
6. Claim Gift Aid on Charitable Donations
If you make charitable donations, ensure you use Gift Aid. This scheme allows charities to reclaim an extra 25% of your donation at no additional cost to you. Moreover, higher and additional rate taxpayers can claim tax relief at the basic rate on their donations. For even faster tax relief, consider including a donation made during the early part of the tax year on your previous year’s tax return. This tip not only supports charitable causes but also offers beneficial tax deductions.
7. Apply for Marriage Allowance
Marriage Allowance allows you to transfer unused personal tax allowance to your spouse or civil partner, potentially lowering their income tax bill by up to £252 in the tax year. Both individuals must be basic rate taxpayers, with one having an unused allowance. This option is beneficial for couples with differing income levels.
8. Consider the High Income Child Benefit Charge
Families receiving child benefits should be aware of the High Income Child Benefit Charge. If your income exceeds £60,000, you might be required to repay some or all of your child benefit. To avoid this, you can consider transferring income between spouses or, in some cases, opt out of receiving child benefit payments. Evaluating this aspect of your tax planning can help prevent unexpected tax liabilities.
9. Make Tax-Efficient Investments
Investing in tax-advantaged schemes such as Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS), and Seed Enterprise Investment Schemes (SEIS) can offer substantial tax benefits. For eligible investments, you can claim up to 30% income tax relief, and in some cases, you can avoid Capital Gains Tax on disposals. These opportunities not only enhance your investment portfolio but also reduce your taxable income, making them an attractive option for savvy investors.
10. Plan for Inheritance Tax (IHT)
Inheritance Tax planning is essential, particularly as thresholds and rules can change. The current IHT thresholds are frozen until 2030, and upcoming changes in pension rules may impact your estate from April 2027 onwards. Seeking specialist professional advice on IHT planning can help you arrange your affairs in a way that minimises tax liabilities for your beneficiaries. Early planning is key to preserving wealth for future generations.
In conclusion, year-end tax planning is essential for maximising deductions and tax efficiency in the UK. You can improve your tax position by optimising dividend and CGT allowances, utilising ISAs and pensions, and considering charitable donations and investments. It’s advisable to consult our experienced tax accountant to customise these strategies for your needs, helping you reduce your tax burden and achieve better financial management and stability.