After the end of a very long January, some of our well-intentioned New Year’s resolutions may be falling by the wayside already. But perhaps we should all unanimously decide to add an additional resolution to the list: take control of our finances. With that in mind, here are eight of our top tax tips for the year ahead.
1) Maximise pension contributions
Each tax year, you can contribute up to £60,000 gross or 100% of your earnings (whichever is lower) and receive tax relief on the contribution. If you haven’t used your full allowance from the previous three tax years, you may be able to carry it forward, provided you have sufficient earnings. This is especially valuable as you approach retirement, offering the dual benefits of tax relief and building your retirement fund.
Additionally, making pension contributions can help restore your personal allowance if your income exceeds £100,000. For every £2 of income above £100,000, £1 of your personal allowance is lost. A pension contribution reduces your taxable income, potentially bringing it back below £100,000 and reinstating your full personal allowance.
Similarly, if your income exceeds £60,000 and you are affected by the High-Income Child Benefit Tax Charge, making a pension contribution could lower your adjusted net income. The tax charge applies when one partner in a household claiming Child Benefit has an adjusted net income over £60,000. Reducing your adjusted net income through pension contributions can either eliminate or reduce the tax charge, allowing you to retain more of your Child Benefit payments. Child Benefit remains a universal benefit, but this charge can partially or fully offset it if your income exceeds the threshold. This strategy can be especially valuable for families.
2) Utilise Your ISA Allowance
The annual ISA allowance remains £20,000 for the 2024/25 tax year. ISAs provide a tax-free environment for investments, meaning no income tax, capital gains tax, or dividend tax is payable on any returns. Unlike pensions, ISA withdrawals are completely tax-free, making them an excellent tool for both long-term savings and short-term accessibility.
3) Stay Ahead with Capital Gains Tax Planning
The capital gains tax (CGT) annual exemption has dropped to £3,000 for individuals and £1,500 for trusts, while CGT rates have increased to 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. This means effective CGT planning is more important than ever. If you plan to sell investments or assets that could generate taxable gains, consider strategies such as utilising any unused losses carried forward from previous years or splitting asset disposals across multiple tax years to minimise your liability. Professional advice can be invaluable here.
4) Inheritance Tax (IHT) Planning
With inheritance tax charged at 40% on estates above the nil-rate band (£325,000 per individual), 2025 might be the year to make preparations to reduce the potential burden on your loved ones. Explore options such as lifetime gifting, using exemptions such as the annual £3,000 exemption and surplus income exemption. Consider placing assets into trusts, or utilising other reliefs like Business Relief. A wealth planner can help tailor these strategies to your circumstances, ensuring your estate planning is as efficient as possible.
5) Adjust Ownership of Investments
If you’re married or in a civil partnership, you can reduce your household’s tax liability by redistributing ownership of income-generating assets. For instance, if one partner is a higher-rate taxpayer while the other is in a lower tax band, transferring investments could help ensure that income falls into the lower-taxed partner’s name. This strategy also ensures better utilisation of allowances like the personal savings allowance or the dividend allowance.
6) Take Advantage of the Dividend Allowance
The dividend allowance for 2024/25 has dropped to £500. If you receive dividend income, consider strategies to manage your exposure, such as utilising ISAs or pensions to shelter investments generating dividend payments. If you run your own business, explore tax-efficient ways of extracting profits to balance salary and dividends effectively.
7) Plan for Upcoming Tax Changes
Stay informed about planned changes to tax thresholds and allowances. For instance, the personal allowance (£12,570) and higher-rate threshold (£50,270) remain frozen, which could lead to more people being pulled into higher tax bands due to inflation. Budget accordingly to avoid unexpected liabilities and consider income-deferral strategies, such as delaying bonuses or investment income, where appropriate.
8) Marriage Allowance
Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner. This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year).To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance - this is usually £12,570.
While sticking to New Year’s resolutions can be challenging, these tax tips are worth implementing to ensure your finances are in top shape for the year ahead. Tax planning is not just about saving money but also about peace of mind and securing your future. Don’t wait until it’s too late to take action. Seek professional advice to make the most of these opportunities and navigate the ever-changing tax landscape with confidence.
To find out how JM Finn’s wealth planning team could help you, contact marketing@jmfinn.com
The information provided in this article is of a general nature and is not a substitute for specific advice with regard to your own circumstances. You are recommended to obtain specific advice from a qualified professional before you take any action or refrain from action.
