As the tax year-end approaches, 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 5 April 2025.
1. Make the Most of Your ISA Allowance
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).
Lifetime ISA (LISA) for First-Time Buyers & Retirement Planning
If you’re aged between 18 and 39, you can also contribute up to £4,000 per year into a Lifetime ISA (LISA). The government adds a 25% bonus, meaning you could receive up to £1,000 extra each year. LISAs can be used to buy your first home or saved for retirement, but you must make your first contribution before turning 40.
2. Maximise Your Pension Contributions
Pension contributions are an excellent way to reduce your taxable income while saving for the future. 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.
Pension Contributions & The £100,000 Personal Allowance Trap
If your income exceeds £100,000, 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.
3. Capital Allowances: Invest in Your Business
If you’re a business owner, making strategic investments before the tax year-end can be beneficial.
Annual Investment Allowance (AIA)
- The AIA allows businesses to claim 100% tax relief on up to £1 million spent on qualifying assets such as machinery, equipment, and IT systems.
- 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.
4. Dividend & Personal Allowances
- 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.
- The Capital Gains Tax (CGT) exemption is £3,000. If you plan to sell assets, consider timing disposals to stay within the exemption limit and reduce CGT liability.
5. Don’t Miss Out on Tax-Efficient Giving
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.
6. Tax Planning for Self-Employed & Small Businesses
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.
Time is Running Out – Act Now!
Tax planning is all about making smart choices at the right time. With 5 April 2025 approaching fast, now is the time to take action. Whether you need help with self-assessment, cash flow forecasting or personal tax strategies, we’re here to guide you.
📞 Contact A&C Chartered Accountants today to discuss how we can help you maximise your tax efficiency before the year-end!