Key Considerations Taxpayers Should Make Before April 5th

In a year where the new Labour government announced key changes to Inheritance Tax, Capital Gains Tax and the regime for non-domiciled taxpayers in the Autumn Budget, UK taxpayers focus has been on how they can best plan for these tax changes before they are implemented. However, with the 2024/25 tax year drawing to a close, there are a number of considerations that taxpayers should be thinking about now, ahead of 5 April 2025. 

Allowances

Each year, taxpayers are entitled to claim various tax-free allowances. Although the allowances may no longer be as attractive as what they once were, they are still there to be used to boost your income whilst minimising your tax liability. Each taxpayer should consider utilising the following tax-free allowances available to them: 

• Personal Allowance – The personal allowance remains frozen at £12,570 until April 2028. This allowance is tapered by £1 for every £2 of income over £100,000 in the year. Taxpayers will lose their personal allowance once their income reaches £125,140. 
• If an individual and their partner are paying tax at different rates of tax, or one has seen their personal allowance tapered/reduced to nil, then it is worth considering whether income generating assets could be better shared between each other.  
• Dividends – There is a £500 dividend allowance, so shareholders and directors should consider taking a dividend up to this limit, as this will be tax-free. Dividends in excess of £500 will be liable to tax at the dividend tax rates, i.e., 8.75%, 33.75% and 39.35% for basic rate, higher rate and additional rate taxpayers, respectively. 
• Capital Gains Tax (CGT) – Together with the dividend allowance, taxpayers are entitled to an annual exempt amount of £3,000 on any capital gains. Where possible, it is beneficial to make the most of the CGT allowance each year, as this cannot be carried forward into future tax years. 
• Interspousal transfers occur at a no gain/no loss for CGT purposes. It is therefore worth considering selling or transferring assets to your spouse or civil partner, particularly if one person is near, or they have exceeded, their £3,000 limit for the year. 
• If a taxpayer has already made a capital gain in the tax year, and there are capital losses brought forward, or losses have been made on other capital disposals, then these can be offset against the gain. It is therefore worth considering if there are any potential losses that can be crystalised by 5 April 2025, to reduce any gains and the subsequent CGT liability for the tax year. 
• Inheritance Tax (IHT) Planning – Individuals can gift up to £3,000 per year, without the value of the gifts being added to the value of their estate for IHT purposes. If the individual did not make any gifts in 2023/24, then the annual exemption can be carried forward into 2024/25, allowing for a maximum tax-free gift of £6,000. Any unused allowance for 2024/25 will carry forward into the 2025/26 tax year. 
• There is also a small gifts exemption, which allows gifts of up to £250 to be made tax-free. 
• Individual Savings Accounts and Junior ISAs – Taxpayers should consider utilising the annual limits on ISAs and Junior ISAs, for those that have children. The annual limit for contributions into ISAs and Junior ISAs is £20,000 and £9,000, respectively. Any income and gains that arise from the ISAs are tax-free. 

Utilising Tax Reliefs

In addition to the various allowances set out above, taxpayers should also consider maximising the following tax reliefs. 

• Pension Contributions – Taxpayers that pay tax at the higher rate can obtain tax relief on any personal pension contributions made by way of extending the limit on which basic rate of tax is paid. The threshold in which basic rate tax is paid will be extended by the gross personal pension contributions made, thereby reducing the amount of tax subject to the higher rate. We’ve covered the maximum pension contribution you can make by 5 April 2025.
• Gift Aid Donations – Tax relief on Gift Aid donations is obtained in a similar way to pension contributions, by way of extending the bands in which tax is charged at the basic rate and the higher rate. Higher rate taxpayers can enjoy tax relief of 20% of the gross value of the donation, with top rate taxpayers enjoying relief of 25%.  
• Unlike pension contributions, there is no cap on the amount that can qualify for Gift Aid, provided that the donor has paid sufficient amount of tax during the year to cover the charity’s reclaim from HMRC. Taxpayer’s can elect for donations made in 2024/25 to be treated for tax purposes as being made in 2023/24. This will be particularly beneficial for individuals who were a higher rate or top rate taxpayer in 2023/24, but not in 2024/25. 
• There may be instances where the tax-relief obtained from personal pension contributions and/or Gift Aid donations reinstates the personal allowance which would have previously been subject to abatement based on the individual’s income for the tax year. Furthermore, gross pension contribution and/or Gift Aid donations may also reduce the high-income child benefit charge depending on the taxpayer’s level of income for the year. 

Other Considerations

• Topping Up National Insurance Contributions (NICs) – For those that are looking forward to retirement, it is a good idea to check out how much state pension they will be entitled to. In order to receive the full amount of state pension, an individual must have 35 completed years on their NICs record. Taxpayers can check their own NICs records by logging into their personal tax account. 
• Taxpayers can plug in any gaps from their NICs records by making voluntary Class 3 NICs payments. Payment generally needs to be made within six years of the gap year, however up until 5 April 2025, women born after 5 April 1953 and men born after 5 April 1951 can complete gaps in their NIC records back to 6 April 2006.  
• Deferring Income – For individuals that are aware that they will have reduced income in 2025/26, then it may be worth considering whether they can defer receipt of any further income until after 5 April 2025. Examples of income that a taxpayer may be able to influence the timing of is a company bonus, a company dividend if they are a director or shareholder, encashments of life assurance and the drawdown of pension income.  
• Tax Efficient Investments – There are a number of initiatives to encourage investment into small and high-growth companies, such as the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Investment under the EIS and SEIS schemes can attract 30% income tax relief and 50% income tax relief, respectively, by way of a tax reducer. EIS and SEIS subscriptions can be carried back to the previous tax year. Relief can also be obtained by deferring any capital gains. Provided that certain conditions are met, the subsequent disposal of the EIS/SEIS shares will be exempt from any tax. 

Tax relief can also be obtained by investing in Venture Capital Trusts (VCT). Investment into VCTs will obtain 30% income tax relief up to a maximum investment of £200,000. Any dividends received and gains arising from the qualifying investment will be tax-free.  

Advice should always be taken if you are considering any of the above and if you would like to discuss any of the points raised above, then please do not hesitate to get in contact with Blair Hay, Fraser Mackay or your usual AAB contact.