STOP! TAKE A MINUTE.... YOU DONT HAVE TO PAY TOO MUCH TAX!!!
Stop, take a minute!
PLAN YOUR TAX BILL, DONT LET YOUR BILL TAX YOU!!
We all know how important TIMING is in business. With that in mind, we remind you that the 5 April 2025 is fast approaching!! We’ve compiled some hints and tips to to help you plan for the tax year-end and ensure that your full tax allowances AND reliefs can be available to you before its too late!
This details below provides some key areas that you should consider for your year-end planning. Everybody’s circumstances are different so each scenario below may or may not apply to you! Advice is advised!
We would like to remind the UK that the “Budget 2025” will take place 26 March 2025 and this will give insight into future allowance changes (this could effect the plans listed for future tax years!)
PERSONAL ALLOWANCE
We can ALL generally earn income of £12,570 tax free called the PA. Be aware that your PA reduces by £1 for every £2 that your adjusted net income is above £100,000. In turn, this reduces to nil once your income reaches £125,140, so you do not get ANY PA at all! Sometimes it is possible to defer (delay) your taxable income to ensure it does not exceed £100,000. Alternatively, you could consider making charity donations (via Gift aid) or contributing towards your personal pension. (You need to be aware that different types of pensions attract different types of tax relief. You also need to be wary of the fact that there are limits to how much you can put into a pension, as it can attract further tax charges if you exceed the limit).
SAVINGS ALLOWANCES
For basic rate tax payers you can have £1,000 worth of savings paid to you, tax free. Higher rate tax payers only get a £500 tax free amount and unfortunately, there aren’t any tax free savings for additional rate taxpayers!
DIVIDEND ALLOWANCE
Back in the day the dividend allowance was £10k! HMRC clearly reduced this over the years and now its only £500 dividend allowance available for all taxpayers. The annual dividend allowance was reduced from £1,000 on 6 April 2024. The tax rate on dividends is 8.75% for earnings up to £50,270 (basic rate tax payers). If you are a higher rate tax payer (where your income exceeds £50,271) the rate is 33.75%. Finally if your income is over £125,140 than the rate of 39.35% applies.
£5,000 STARTING RATE FOR SAVINGS
If you earn income through interest on savings, you can qualify for the savings allowance, meaning you could earn as much as £19,070 without a tax liability in 2024/25. Here those on lower incomes get an extra tax-free allowance of up to £5,000 for their savings.
- If your income from pension or work is under the personal allowance (£12,570), you get the full £5,000, meaning you can earn up to five grand in savings interest without being taxed.
- If your income from pension or work is above the personal allowance (£12,570), you lose £1 of the £5,000 starting rate for savings for each £1 you earn above the personal allowance.
- If your income from pension or work is £17,570 or more. You don’t get any of the £5,000 starting rate for savings.
MARRIAGE ALLOWANCE
Married? Happily or not, you can you can potentially transfer £1,260 of your Personal Allowance to your partner, saving tax by up to £252. This can be backdated 4 years! (You/your spouse/civil partner need to be basic rate taxpayers).
SELF ASSESSMENT - PERSONAL TAX
If you paying the additional rate of Income Tax be aware that this was reduced from £150,000 to £125,140 from 2023/24 onwards. Income above this threshold is taxed at 45% (savings and other income) or 39.35% (dividend income). Making a private pension payment can really help with this! IFA’s are the best people to contact in this regard as they are best qualified for this type of planning where you can put this claim on your self assessment, providing you have made the CORRECT type of pension payment prior to 5 April 2025. Overall it means that effectively you can earn more in the 20% tax band - therefore reducing your income tax due within the higher rate band).
CHILD BENEFIT - HIGH INCOME TAX CHARGE
Planning your tax position can help you ensure that you do not have your benefit totally wiped out (This happens when you get to £80k!). HMRC make an adjustment, You will start to lose the child benefit if you or your partner have an individual income that’s over £60,000. You could both earn £59,999 without an issue!
However some good news, child benefit will increase by 1.7% from 6 April 2025. The weekly rate for the first child will increase to £26.05 and for additional children an increase to £17.25.
GIFT AID (CHARITABLE GIVING)
Consider claiming gift aid on your charitable donations. Donations made under the Gift Aid Scheme extend your basic rate band by the donation grossed up by 100/80 (mentioned above). This will ensure that you can move your income from higher rate tax bracket to the basic rate bracket! There are no limits to the amount of gift aid donations you can make as long as not more than four times your tax bill for the year.
TAX CODE CHANGES - PAYE NOTICES
If you are employed or have a pension, it is worth checking your 2024/25 PAYE notice of coding, which HMRC should now have issued. This will minimize the risk of excessive tax being withheld from payments made over the next year. Benefits in kind will be taxed monthly via PAYE from April 2026, this will be a big change!
TRANSFERS BETWEEN SPOUSES
Have you considered equalizing income where possible to fully utilize income tax allowances and threshold bands?
OMB REMUNERATION STRATEGY
Its always worth reviewing your profit extraction strategy (at least annually!) Corporation Tax rates have increased in recent year, changes to the personal tax band thresholds and the continued higher rates of income tax on dividends are things to be mindful of! Speak to your advisor.
PENSIONS
MAXIMISE PENSION CONTRIBUTION
Have you made the highest payment towards your annual contribution for 2024/25 for your retirement planning?
PENSION ALLOWANCE BROUGHT FORWARD
Unused allowances from tax years 2022, 2023 and 2024 can be potentially used in the tax year 2024/25. Review the unused allowances from the last three tax years!
EMPLOYERS CONTRIBUTIONS PENSION
Should you look to make a salary sacrifice for future pension contributions? Are you in a scheme that means you should be claiming higher rate tax relief?
IHT CHANGES FROM APRIL 2027!
From 6th April 2027 most unused pension funds and death benefits will be included within the value of your estate for IHT purposes. The typical rule of spending your pension last will no longer apply and may be more beneficial to draw on pensions earlier than previously planned.
CONTRIBUTION TO A PENSION SCHEME FOR A FAMILY MEMBER
Please be aware that you could make an annual net pension contribution of up to £2,880 (£3,600 grossed up) into a pension scheme for a family member (if they do not have relevant UK earnings). Ie is your spouse not employed? Junior SIPP to help save for your child can also be setup!
INVESTMENT IDEAS
INDIVIDUAL SAVINGS ACCOUNT (ISA)
Your £20,000 annual ISA allowance of to allow investment income and capital growth to be generated tax free?
JUNIOR ISA
Do you need to consider a Junior ISA? These are long-term, tax-free savings accounts for children (under 18), and you can pay up to £9,000 before the end of the tax year into your children’s ISA.
SEIS, EIS and VCTs - PLEASE CONSIDER THESE OPTIONS AS TAX EFFICIENT INVESTMENTS!
EIS offers income tax relief of 30% on investments up to a maximum of £1m and allows you to defer capital gains tax. Please note that capital gains on disposal of the EIS shares are not subject to CGT after three years.
SEIS offers income tax relief of 50% on investments up to a maximum of £100k and can provide you with additional CGT relief. Disposals of SEIS-qualifying shares are not subject to CGT after three years.
VCT offers income tax relief on subscriptions of up to £200K, at 30% as well as tax-free dividends and capital gains tax reliefs.
Social Investment Tax Relief (SITR) is intended to encourage investments in social enterprises. You can obtain income tax relief of 30% on up to £1m of investment, provided you retain your investment for three years. Gains on the investment are also free of CGT.
CAPITAL GAINS TAX
ANNUAL EXEMPTION
Have you used your AE for 2024/25 of £3,000? The annual exemption cannot be carried forward or transferred.
INTER SPOUSAL TRANSFERS
Assets transferred between married couples, or civil partners do not normally give rise to a capital gains tax charge. Consider transferring assets to your spouse or civil partner, to utilise their annual exemption or capital losses.
CAPITAL GAINS TAX RELIEFS
Business Asset Disposal Relief (BADR) If you are contemplating the sale of your business make sure you have arranged your affairs such that you can claim BADR. Under BADR qualifying gains of up to £1m are taxable at the reduced rate of 10%. However, from 6 April 2025 the CGT rate will increase from 10% to 14%, with a further increase from 6 April 2026 to 18%. Please contact us to review the qualifying conditions for the relief.
Private Residence Relief (PPR) Have you disposed of a property that you have not lived in throughout ownership? There are reliefs available that may still exempt the gain. Please note if you dispose of a property this needs to be reported online within 60 days of completion.
Holdover relief Have you made any gifts of qualifying property that could allow the gain to be deferred on
TAX PLANNING FOR IHT
ANNUAL EXEMPTION Have you utilised your annual exemption of £3,000? This can be carried forward for one year only. Annual exemptions can be a useful tool to slowly distribute cash during an individual’s lifetime without triggering Inheritance Tax (IHT).
NORMAL EXPENDITURE OUT OF INCOME
Should you be making a gift out of normal income? Significant gifts can still escape IHT if made as part of your normal expenditure i.e. if it is habitual and occurs year on year.
GIFTS ON MARRIAGE
Lifetime gifts on marriage are exempt from inheritance tax and can be a good way to transfer valuable assets (say, a family heirloom) to your kin. The amount of exemption depends on the relationship between the donor and the recipient as follows: gift to your child £5K, to grandchild- £2.5K any other individual example niece or nephews- £1K.
BUSINESS TAX IDEAS
Accounting dates Have you recently considered if tax can be saved by incorporating your business?
Incorporation If you’re thinking of purchasing new equipment, do you need to purchase this before 5 April 2025 to maximise tax allowances?
Capital Allowances Do you own a double cab pick-up truck? From 6 April 2025 they will no longer be classified as vans for BIK purposes or capital allowance purposes.
Benefits in Kind (BIK) Are you prepared for the reduction in the employer's NIC threshold from £9,100 to £5,000 or considered the increase in tax from 13.7% to 15%? Do you need to consider your remuneration strategies moving forwards?
LONG TERM PLANNING
Annual Investment Allowance - The AIA has been permanently set at £1m limit. Thus, businesses can continue to invest in plants and machinery in the future without complex tax calculations. In addition, are you taking full advantage of the new full expensing rules?
R&D (RESEARCH AND DEVELOPMENT)
The SME scheme and the RDEC (primarily claimed by large companies) will merge from 1 April 2024, giving a company tax credit of 20% that can be recognised ‘above the line’ as taxable income, with a notional tax at 19% applying to loss-making companies. For profit-making companies paying tax at the main rate, the R&D relief continues to be 15p per £1 of qualifying spend.
CORPORATION TAX
The main rate of CT of 25% introduced from 1 April 2023, continues to apply for 2024/25 for companies with profits above £250,000, with the 19% rate remaining in place for smaller companies under the Small Profits Rate of £50,000. If you are running a medium-sized company, you may want to re-evaluate your profit extraction strategy and if it is still beneficial for you to run your business via a company.