It’s never too late to undertake some end-of-year tax planning.
Now is the perfect time to review your finances and make sure you’re making the most of available tax reliefs and allowances. A little planning now can help reduce your tax bill and keep more of your hard-earned money. Here’s a breakdown of key tax planning opportunities you should consider before 5th April 2025.
Year-End Tax Planning Ideas For Individuals
Max Out Your ISA
If you have some spare cash, an obvious tax planning point would be to maximise your ISA allowances.
Individual Savings Accounts (ISAs) remain one of the most tax-efficient ways to save and invest. For the 2024/25 tax year, the ISA allowance is £20,000 per person. By using your full allowance, you can protect your savings and investments from income tax and capital gains tax (CGT).
Set Up A Lifetime ISA (LISA) To Save
If you’re aged between 18 and 39, you can also set up a Lifetime ISA to help buy your first home or save for later life – but you must make your first contribution before turning 40.
You can contribute up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. Note that the Lifetime ISA limit of £4,000 counts towards your £20,000 annual ISA limit.
You can withdraw money from your LISA if you’re:
- Buying your first home, or;
- Aged 60 or over, or;
- Terminally ill, with less than 12 months to live.
However, if you withdraw cash or assets for any other reason (an unauthorised withdrawal), you’ll pay a withdrawal charge of 25%. This recovers the government bonus you received on your original savings.
Boost Your Pension
You might also want to consider increasing your pension savings before the end of the tax year (5th April, every year).
Under the current rules, the government provides tax relief at your highest rate of tax:
- Basic rate taxpayers (20%): Contributing £4,000 results in an actual cost of £3,200 (as the government tops it up to £5,000).
- Higher rate taxpayers (40%): Can claim an additional £1,000 relief, bringing the net cost down to £3,000.
- Additional rate taxpayers (45%): Receive even more tax relief, reducing the net cost further.
Additional pension contributions can be even more effective if your income is over £100,000, as you start to lose your £12,570 personal allowance. For every £2 earned above this threshold, your allowance reduces by £1, disappearing completely at £125,140. However, making pension contributions can help you bring your taxable income below this threshold, effectively providing a 60% tax saving.
And if you’re wondering how much you can contribute to your pension, then here’s what you need to know: for most UK taxpayers, the maximum annual pension contribution allowance is currently £60,000 per tax year (this can be reduced for higher earners due to the tapered annual allowance rules). This limit includes total contributions from both you and your employer. You can carry forward unused allowances from the previous three tax years, allowing you to exceed the £60,000 limit in the current year if previous allowances remain unused. For example, any unused allowance from the 2021/2022 tax year must be utilised by 5th April 2025 or it will expire.
Bring Forward Your Capital Gains
Capital Gains Tax (CGT) is a tax on any profit you make on the disposal of an asset and it applies to most assets when they’re sold. However, there are some exceptions. For example, you don’t pay CGT when you sell your main residence, or on personal possessions sold for less than £6,000.
If you have unrealised gains, then you might wish to consider bringing them forward if you haven’t used your Annual Exempt Amount, which is £3,000 for gains from the 2024/2025 tax year. It was previously as high as £12,000 a few years ago, so the allowance has been reduced significantly. Nonetheless, you should still make the most of it as part of your year-end tax planning.
Also, consider if you have any worthless shares for a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances which could save tax of up to 45% of the loss.
Get in touch with our capital gains tax advisors if you have any questions or require further support in this area.
Use Your Gift Allowance
Looking to start passing on your wealth and assets without incurring an inheritance tax bill?
It may be worth utilising the annual exemption for gifts, which currently stands at £3,000. Plus, if you didn’t use up the gift allowance in the previous tax year, then it can carry over. Note that £3,000 is the total allowance for the tax year, not the amount for each gift.
There’s also an exemption from inheritance tax for regular gifts out of an individual’s surplus income. Inheritance tax is designed to tax transfers of capital, so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for IHT. The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees or pension contributions on behalf of children or grandchildren. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can help you with a suitable spreadsheet
Take Dividends
The Dividend Allowance remains at £500 for 2024/25. If you own a limited company, consider taking dividends before the tax year-end to optimise your income strategy.
Gift Aid Donations
If you’re feeling charitable, making Gift Aid donations before the tax year-end can reduce your tax bill. Higher and additional rate taxpayers can claim back tax relief on their self-assessment tax return, lowering their tax liability further.
Year-End Tax Planning Ideas For Businesses
It is always a good idea to set up a planning meeting with us a couple of months before your business year-end so that we can advise you on the best actions to take to reduce your taxable profits. In addition to considering paying yourself a bonus from your company you might consider the following…
Annual Investment Allowance (AIA)
If you are thinking of investing in your business, e.g. new vans, plant and machinery, equipment, and even IT systems, then you may wish to do so before the year-end to get tax relief this year rather than wait another year.
The Annual Investment Allowance (AIA) allows businesses to claim 100% tax relief on up to £1 million spent on qualifying assets.
Motor vehicles are excluded, but businesses purchasing a new, zero-emissions electric car can claim 100% first-year capital allowances.
Full Expensing For Limited Companies
If you run a limited company, you can claim full expensing relief on new (not second-hand) plant and machinery purchases. Unlike AIA, there is no upper limit on qualifying expenditure.
Hire Purchase Agreements & Tax Relief
If your business buys equipment under a hire purchase agreement, you can still claim capital allowances on the full cost as long as the asset is in use before your business year-end – even if payments are spread over time.
Bring Forward Expenses
If you’re self-employed, there are additional tax planning opportunities, such as bringing forward expenses into this tax year or deferring income to manage tax liabilities efficiently. We can help you optimise your tax position.
Employer Pension Contributions
Pension contributions made to employees by an employer are tax-efficient. If you are considering making employer company pension contributions, you will need to make the payment before the year-end to get tax relief in the year. There are annual and lifetime limits to consider so it’s worth having a chat with your accountant before making payments.
Staff Bonuses
If you are considering staff bonuses for the year, then you may wish to make a note of the decision before the year-end and then you have up to 9 months to make the payment afterwards, but an accrual may be made before the year-end to get tax relief early.
Electric Company Cars
Have you considered electric cars for your business?
The advantages include:
- 100% First Year Allowance at present against business profits e.g. an electric car purchased for £80,000 would save corporation tax at 19% i.e. £15,200 in the year of purchase.
- Low benefit in kind rates:
- 2024-25 – 2%
- 2025-26 – 3%
- 2026-27 – 4%
- 2027-28 – 5%
- Reduced Employer Class 1A National Insurance Contributions (company cars only).
- Exemption from London Congestion Charge.
- Significant fuel savings vs a comparable combustion engine car and no car fuel benefit for company cars.
- The provision of free electric charging facilities for electric or plug-in hybrid cars will be a tax free benefit in kind, provided it is made available for all employees at that workplace.
Need More Advice?
Do you need more tax planning ideas for your business?
We can help. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to manufacturing and ecommerce.
Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups, SMEs and beyond – helping spur growth and success. If you want to learn more about how the team can help or simply want advice from a trusted accountant, please don’t hesitate to contact us.
