4 important tax breaks to make the most of before the 2024/25 tax year ends

Is the end of the tax year a staple in your calendar, or does it usually pass without you noticing?

If the former, you might already know that in the last few weeks of the tax year, it’s a good idea to review the tax breaks you haven’t used and make the most of them where possible. And, if you don’t usually pay attention to the end of the tax year but are concerned about rising taxes, now is the time to start looking at your tax-efficient opportunities more closely.

After all, the government’s Autumn Budget remains on many people’s minds, and the Spring Statement is set to be delivered on 26 March, perhaps ushering in further developments to the UK’s fiscal policies.

In any case, keep reading to discover four key tax breaks to make the most of before 2024/25 draws to a close. And, feel free to get in touch with your adviser if you wish to discuss these elements in greater detail.

 

1. Your ISA allowances

Individual Savings Accounts (ISAs) are tax-efficient vehicles for saving and investing.

Any interest or returns your money receives within an ISA is free from Income Tax, Capital Gains Tax (CGT) and Dividend Tax.

ISAs are subject to annual contribution limits:

• A combined limit of £20,000 for all adult ISAs including Cash, Stocks and Shares, Innovative Finance, and Lifetime ISAs (LISAs)
• An individual limit of £4,000 for LISAs, that makes up part of the overall £20,000 allowance
• An additional £9,000 limit for Junior ISAs (JISAs), which means you can save and invest on behalf of a child tax-efficiently too.

If you haven’t already maximised your ISA allowances for the year, now is the time to consider doing so. Even if you don’t have a lump sum ready to deposit, you could consider transferring funds from a standard savings account into a Cash ISA, to ensure any growth remains untouched by HMRC.

You might consider routing investments into a Stocks and Shares ISA too, especially if you’re hoping to use these investments to fund big goals, such as retirement. Any money you take from your ISAs isn’t taxed as income.

Remember: ISAs have a “use it or lose it” allowance, so once the clock strikes midnight on 5 April, your allowances will reset.

 

2. Your pension Annual Allowance

If you’re still working, you probably pay a standard monthly amount into your pension either through your employer or manually.

This is a great starting point, but it’s unlikely that your contributions are enough to use all of your Annual Allowance, which is the amount you can contribute (including tax relief within your pension and third party contributions) without receiving a tax charge.

The Annual Allowance stands at £60,000 as of 2024/25. Yours may be tapered down if you’re a very high earner or if you’ve already flexibly accessed your pension.

As you begin to approach retirement, it’s worth considering how an annual boost to your pension could serve you later. In an example, Standard Life reports that only a 2% increase to your pension contributions (in this case, from your employer) could reward you with a pension pot worth up to £115,000 more by the time you retire.

Plus, pension contributions within your Annual Allowance are tax-efficient because:

• You’ll receive tax relief on what you put in. Normally, 20% tax relief – essentially a “refund” of the Income Tax you paid when earning the money – is applied automatically. If you are a higher- or additional-rate taxpayer, you could claim up to 45% tax relief through self-assessment.
• If you’re self-employed, pension contributions could reduce your Income Tax bill. Any amount within the lower of your Annual Allowance or taxable earnings can be paid into your pension and deducted from your taxable income the next time you self-assess.
• When you retire, you can usually take 25% of your fund tax-free. This applies up to the Lump Sum Allowance (LSA) of £268,275, subject to protection.

So, if you are looking to invest funds for the long term before the financial year is out, check how much of your Annual Allowance you have used, and consider making a lump sum contribution if you can.

You can only carry any unused Annual Allowance forward three tax years, if you were a member of a registered pension scheme for that period, then the remaining portion is gone for good.

 

3. Your annual exemption for making financial gifts

If you’re satisfied with the amount of wealth you have built over the years, you are likely looking for meaningful ways to share it with the next generation.

Plus, there are greater benefits to sharing your wealth than simply helping out your children and grandchildren.

According to MoneyWeek, HMRC’s Inheritance Tax (IHT) receipts are set to be the highest on record for the 2024/25 tax year. Receipts are rising because the tax-free nil-rate bands are now frozen until 2030, so while the value of UK families’ wealth increases, it’s likely that IHT bills will follow suit.

The more your estate is worth, the higher your IHT bill could end up being once you pass away. So, using your annual gifting exemption could be a great way to improve your family’s tax efficiency.

Here’s what to keep in mind:

• As of 2024/25, and set to continue in 2025/26, you can give away up to £3,000 a year in the form of capital.
• “Capital” includes cash, investments, property, and some valuable belongings.
• As long as your gift remains within the annual exemption, this money won’t count as “yours” when you pass away, potentially reducing the IHT liability on your estate.
• Most gifts above the amount of £3,000 are known as “potentially exempt transfers” (PETs), which could still be included in your estate for IHT purposes if you pass away within seven years.
• Your spouse can make their own gifts too, as the annual exemption is individual, meaning you could increase the combined amount you give away to £6,000.

If you have not given any funds away since April 2024, and you can afford to do so, it may be worth considering making a gift before the end of this tax year.

For instance, if you have three children, you could boost their wealth by £1,000 each – or £2,000 if your spouse contributes too – and face no IHT consequences, no matter when you pass away.

Talk to your financial adviser for more guidance on how to gift your wealth tax-efficiently.

 

4. The Capital Gains Tax Annual Exempt Amount

You might have read in our Autumn Budget breakdown that the chancellor raised the rate of CGT with immediate effect in October 2024.

Now, non-property rates are the same as the previously higher property rates:

• 18% for basic-rate taxpayers
• 24% for higher- and additional-rate taxpayers.

You’ll likely pay CGT if you dispose of non-ISA shares, properties that aren’t your main home, and some valuable belongings and make a profit on these. CGT is applied to the gains you make, not the value of the overall sale.

Fortunately, there’s an Annual Exempt Amount of £3,000 to use up each tax year.

So, if you have plans to strategically dispose of investments (such as to subsidise your retirement income), ensure you’ve thought about using your CGT Annual Exempt Amount for the 2024/25 tax year.

A few helpful things to know if you’re likely to pay CGT this year:

• You can report previous capital losses through self-assessment to offset any gains you make
• By sharing assets equally, you and your spouse can effectively double your Annual Exempt Amount to £6,000 a year
• You cannot carry forward unused Annual Exempt Amount from previous tax years.

It’s wise to take professional advice before disposing of assets in your investment portfolio.

 

Get in touch to learn more about the benefits of tax efficiency

Using the available exemptions and allowances each tax year means you could keep more of your hard-earned wealth for yourself and your family.

Our advisers will help you form a bespoke financial plan that takes tax efficiency seriously.

Email info@chancellorfinancial.co.uk, or call 01204 526 846 to speak to an adviser.

If you’re already a client here at Chancellor, contact your personal financial adviser to discuss any of the content you’ve read in this article.

 

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate tax planning or estate planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.