As the end of the tax year approaches, it’s the perfect time to review your financial strategies and make sure you’re maximizing your savings and minimizing your tax liabilities. By taking proactive steps, you can set yourself up for a stronger financial future. Here are seven actions to consider before the UK tax year ends on April 5th, 2025.
1. Fully Utilize Your ISA Allowance
An Individual Savings Account (ISA) is one of the simplest ways to shield your savings from taxes. For the 2024/25 tax year, you can invest up to £20,000 in an ISA without paying tax on any returns. Whether you choose a Cash ISA, Stocks and Shares ISA, or Lifetime ISA, be sure to use the full allowance if possible, especially if you have not made the most of it yet.
2. Maximize Your Capital Gains Allowance
Each year, you can make up to £3,000 in capital gains without paying tax on it. If you plan to sell any assets or investments, consider using this tax-free allowance to reduce your capital gains tax. If your gains exceed this limit, you can potentially spread sales across different tax years to maximize your tax-free allowances.
3. Plan Together as a Family
If you’re married or in a civil partnership, managing your finances together can unlock significant tax-saving opportunities. Here are a few ways family planning can help:
- ISAs: Every adult can contribute up to £20,000 to their own ISA, and parents can invest up to £9,000 annually in a Junior ISA for each child. For a family of four, this could add up to £58,000 in tax-free savings each year.
- Savings Allowances: Depending on your income, basic-rate taxpayers can earn up to £1,000 in savings interest tax-free, and higher-rate taxpayers can earn up to £500. By splitting savings between spouses, you can ensure that both of you benefit from the full tax-free allowance.
- Capital Gains Tax: Jointly owned assets allow both partners to use their £3,000 capital gains tax allowance, potentially reaching £6,000 in tax-free gains. Transferring assets between spouses is usually exempt from capital gains tax, which can help maximize these allowances.
- Marriage Allowance: A higher-earning spouse can transfer a portion of their Personal Allowance to their partner, reducing the overall tax burden. This allowance can even be backdated for up to four years.
By working together, you can take full advantage of these allowances and save more on taxes.
4. Check Your Tax Code
An incorrect tax code can lead to overpaid taxes, so it’s important to double-check your tax code before the end of the tax year. If you find any discrepancies, contact HMRC to have them corrected. If you’ve overpaid, you may be entitled to a refund, so it’s worth reviewing your tax code to avoid unnecessary losses.
5. Top-Up Your State Pension
If there are gaps in your National Insurance contributions, now is a good time to make voluntary contributions to fill them. These additional payments could make a significant difference to your future state pension. This is a simple and effective way to boost your retirement income.
6. Take Advantage of Gift Allowances
Reducing your estate’s value can lower your inheritance tax liability. You can gift up to £3,000 each tax year without triggering inheritance tax. If you haven’t yet used this allowance, consider making a gift before the tax year ends.
Additionally, gifts made from surplus income (income remaining after normal living expenses) could be exempt from inheritance tax, provided they don’t reduce your standard of living.
Here are some other gifting allowances to consider:
- Small Gifts: You can give gifts of up to £250 to as many people as you like each year, as long as you don’t exceed the £3,000 annual limit.
- Wedding Gifts: You can give up to £1,000 to someone getting married, or up to £5,000 if you’re a parent or £2,500 if you’re a grandparent.
- Charitable Donations: Gifts to registered charities are exempt from inheritance tax.
By planning your gifts wisely, you can reduce your estate’s value for inheritance tax purposes while also supporting loved ones.
7. Make the Most of Gift Aid
If you’re looking to support a charitable cause, the end of the tax year is an ideal time to make a Gift Aid donation. For every £1 you donate, the charity can claim an additional 25p from the government, making your contribution even more impactful. Additionally, your donation reduces your taxable income, helping you save on taxes.
Gift Aid is a great way to support causes that matter to you, while also enhancing your tax efficiency and lowering your overall tax liability.
Conclusion
As the tax year comes to a close, taking the time to implement these strategies can help reduce your tax liabilities and set you up for a financially sound future. Whether it’s making full use of your ISA allowance, contributing to your pension, or planning gifts for your family, these actions can significantly benefit your financial health. Be sure to take advantage of these opportunities before the deadline to maximize your savings and minimize your taxes.
