As we step into 2025, it’s the perfect time to turn your attention to tax year-end planning.
As we step into 2025, it’s the perfect time to turn your attention to tax year-end planning. The early months of the year are traditionally focused on this important task, driven by key dates such as the tax year-end on Saturday, 5 April 2025, and the usual Spring Budget. This year, however, following last October’s impactful Autumn Budget, there will be no Spring Budget. Instead, Rachel Reeves will present a Spring Forecast in late March. In light of the changes introduced last autumn, there’s a lot to review and plan for.
- Pension contributions: The Budget announcement that pensions will fall within the scope of inheritance tax (IHT) from 2027/28 makes the review of pension contributions slightly different from previous years. For most people, pensions remain a highly tax-efficient way of saving for retirement, but for the wealthy few unconcerned about retirement income, they are no longer the estate-planning tool of choice.
- Capital gains tax (CGT): Capital gains tax rates increased in the Budget to 24% for higher and additional rate taxpayers and 18% for other taxpayers. If you have not used your annual exemption – now just £3,000 of gains – you should consider doing so after what has been a generally good year on the world’s stock markets.
- IHT: Now is the time to use your annual exempt amount (£3,000 per tax year) for 2024/25 if you have not already done so. If you did not use your full exemption from 2023/24, you can also gift the unused element after you have exhausted this year’s exemption.
- Marriage allowances: If you or your spouse/civil partner had income below the personal allowance in 2020/21 (£12,500), you have until 5 April 2025 to claim the marriage allowance for that year (£1,250), which could produce a tax saving of up to £250. A claim can only be made if the other partner was a basic rate taxpayer (starter, basic or intermediate rate in Scotland) in that tax year. The same principle applies (with an allowance of £1,260) for 2021/22 and subsequent years onwards.
- Threshold planning: The long-term freezes that have applied to income tax allowances and many thresholds may mean you move into a higher tax band in the coming tax year. Equally you could find yourself crossing the unchanged £60,000 threshold for the high-income child benefit charge or the £100,000 threshold for personal allowance taper and loss of tax-free childcare. Among the strategies to beat the unmoving thresholds, you could bring forward income into 2024/25 (e.g., by closing an interest-paying account) or move some income-generating investments across to your (lower income) spouse or civil partner by 5 April.
It is best to seek advice before taking any action – in tax, errors can be costly and difficult to unwind.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
To discuss your financial planning, contact our Sheffield based Financial Advisers on 0114 266 4432 or info@smh.group
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