IFA Fundamentals: Tax-Saving Measures for Year-End

May 19, 2025

As we near the end of the tax year on 5 April, every taxpayer should understand the importance of this date and consider their tax position. Discover essential planning tips for maximizing your allowances.

IFA Fundamentals: Tax-Saving Measures for Year-End

What Actions to Review Before the 2023/24 Year-End?

The tax landscape has witnessed considerable changes, making the situation more challenging for taxpayers and investors alike. As we near the end of the 2023/24 tax year on 5 April, every taxpayer should understand the importance of this date and consider their tax position. Don't leave it to chance and miss the deadline.

Planning Tips to Consider

Marriage Allowance

This allowance provides a unique opportunity for couples where one partner is a basic rate taxpayer, and the other partner's income falls below the personal allowance threshold. With the Marriage Allowance, you can transfer up to £1,260, which equates to 10% of the personal allowance from the lower-income partner to the higher-income partner.

This transfer can significantly reduce the tax liability for the basic rate taxpayer, potentially saving up to £252 in the current year. It's important to note that this allowance is specifically designed for married couples or registered civil partners. By efficiently utilising this allowance, couples can optimise their combined tax liabilities and make the most of their financial situation.

Employee Tax Reliefs

In the course of your employment, there are several tax reliefs you may be eligible to claim. These provisions are designed to offer financial respite for certain expenses related to your job.

One such relief is for professional subscriptions. If you must maintain membership in a professional body as part of your job, you can claim tax relief on these fees.

Another provision is the 'working from home' allowance. This relief is aimed at employees who incur additional costs due to working from home. It's designed to alleviate some financial pressure from maintaining a home office.

Individual Savings Account (ISA) Allowance

You receive an ISA allowance of £20,000 in the current tax year. Contributions can be allocated to a Cash ISA, Stocks & Shares ISA, Lifetime ISA or Innovative Finance ISA.

ISAs are a 'tax-efficient wrapper' which can make your investments grow more effectively than if you held them outside of an ISA. ISA investments grow free from Capital Gains Tax (CGT) (unless your investments are held in a tax haven), and no tax is payable on interest earned. (The use of tax-efficient wrappers like Individual Savings Accounts is based on current legislation and may be subject to change; the value of tax benefits depends on individual circumstances.)

Junior ISA (JISA)

If you have children, you can save up to £9,000 in a JISA in the 2023/24 tax year, however, they cannot access it until they reach 18, although the investments can be managed on their behalf. A child can only have one JISA (Cash and/or Stocks & Shares) at a time.

Anyone with parental responsibility for a child can open a JISA for them, as long as the child is under 18 and lives in the UK. Once a parent or guardian has opened the account, anyone can pay into it, including grandparents, other family members and friends, as long as the total amount does not exceed the annual limit.

The Lifetime ISA

A Lifetime ISA (LISA) applies to individuals aged 18 to 40 who are either planning to buy their first property or saving for later life. The Government will add a 25% bonus to the amount you put into the ISA up to the maximum limit of £4,000 each tax year until the age of 50. This means for every £100 you save, the government will add an extra £25. If you put in £4,000 you will end up with £5,000.

For lifetime ISAs specifically designed to fund the purchase of a first property, there are certain limitations. The property value must not exceed £450,000. Funds not used for a first house purchase become accessible without penalties only at age 60. Early withdrawals incur a 25% penalty on the withdrawn amount, affecting both the government bonus and some of your own money.

Pension Annual Allowance

Make use of your pension allowance to save tax. The Annual Allowance (AA) is the amount of money you can contribute to your pension over a tax year whilst receiving tax relief. For the tax year 2023/24, the standard AA is £60,000. Your AA also applies to contributions made to your pension by other people, such as your employer. You may still be able to contribute more than your AA by carrying forward unused AA from the previous three tax years.

When making pension contributions yourself, the general rule is that you will receive tax relief at your highest marginal rate of Income Tax. For funds contributed directly into your pension by your employer, those payments are made before any tax is deducted, meaning you automatically receive tax relief at your highest marginal rate of Income Tax.

Gift Allowance

Take advantage of your gift allowance to save on Inheritance Tax (IHT). IHT applies when you make a gift either during your lifetime or, more commonly, by Will, which is above the Nil Rate Band, which is set at £325,000. If the value of your estate is above this figure, 40% tax may be deducted from the excess. The good news is that there are many exemptions and planning approaches to help minimise the impact of these taxes.

For example, under the annual gift exemption, you can give up to £3,000 away each tax year IHT-free. You can give up to £250 to as many people as you like and there are other larger exemptions available, including donating a portion of your income, specific rules around wedding presents and making gifts to charity or political parties.

Capital Gains Tax

Use your Capital Gains Tax (CGT) allowance to save tax. CGT is a form of tax payable when you sell an asset, such as a second property, shares (which aren't held in an ISA) or a business, for a profit. Profits made from these disposals are subject to CGT, although the rate of tax is different depending on what type of asset you are selling and your marginal rate of Income Tax. The annual CGT allowance is currently (for the 2023/24 tax year) £3,000 for Individuals and £1,500 for most Trustees.

National Insurance Contributions Cuts

Significant National Insurance reforms took effect on January 6, 2024, with the main rate of Class 1 Employee National Insurance contributions reduced from 12% to 10%. This tax relief applies to earnings between the Primary Threshold (£12,570, from April 2023) and Upper Earnings Limit (£50,270). Employees will benefit from this reduction in their January pay, with an average saving of £448 per year for those earning £35,400.

Further changes include the main rate of Class 4 NICs for self-employed individuals dropping from 9% to 8% starting April 6, 2024. Additionally, the weekly Class 2 NICs flat rate of £3.45 paid by self-employed earning over £12,570 will be abolished from the same date, saving self-employed individuals up to £179.40 a year.

State Pension 'Triple Lock' Increase

The State Pension will increase by 8.5% from April 6, 2024, under the 'Triple Lock' that ensures it rises by whichever is highest: inflation, earnings growth, or 2.5%. The full new State Pension will rise from £203.85 to £221.20 per week, providing £11,502.40 annually. However, eligibility requires 35 qualifying years of National Insurance contributions or credits.

The basic State Pension for those who reached state pension age before April 6, 2016, will increase to £169.50 weekly, totaling £8,814 yearly. To receive this full amount, men need 30 qualifying years if they were born before April 6, 1945, or 44 qualifying years if born after. Women born before April 6, 1950, need 30 qualifying years, while those born after need 39.

Conclusion

As the tax year-end approaches, taking time to review your financial position and implementing appropriate tax planning strategies can lead to significant savings and enhanced financial well-being. By maximising available allowances, understanding recent tax changes, and strategically timing financial decisions, you can optimise your tax position and work toward your long-term financial goals.

Remember, tax planning should be an ongoing process, not just a year-end activity. Regular reviews and adjustments to your financial strategy, ideally with professional guidance, can help ensure you're making the most of available opportunities while remaining compliant with tax regulations.