Tax Planning Tips Before 5 April 2025
As the 5 April personal tax year-end approaches, now is the time to review your finances and ensure you’ve taken advantage of key tax allowances and reliefs. Many allowances reset at this point, meaning if you don’t use them, you lose them. Below are some important considerations to help you minimise your tax liability and maximise your allowances before the deadline:
General Tax Planning Tips
Use Your Pension Allowance
You can contribute up to £60,000 into a pension and benefit from tax relief - if you are a company director it is usually much more tax efficient to pay this directly from your limited company instead of paying into one personally.
Please be aware:
If you haven’t used your full pension allowance from the previous three years, you may be able to carry it forward. If you pay into your pension personally, your pension will be grossed up (e.g. you will pay in £80 and the government will top it up by £20 to £100), and its the grossed up figure which must remain below your pension allowance.
Higher earners may have a reduced allowance due to the tapered annual allowance.
You can also contribute to a child’s pension for your child, grandchild, etc.
This is quite a complex area and so we would recommend speaking to an independent financial adviser, such as Jim Monger, to explore your options.
Maximise Your ISA Allowance
ISAs remain one of the most tax-efficient ways to save. You can contribute up to £20,000 into an ISA, and any interest, dividends, or capital gains earned within it are tax-free. If you haven't used this allowance yet, now is the time to do so before it resets on 6 April. You can also contribute to a child’s ISA, offering a tax-free way to save for their future. Again, financial advice from Jim Monger can help you decide the best approach.
Use Your Capital Gains Tax (CGT) Allowance
The CGT exemption for 2024/25 is £3,000. If you have investments or assets that have increased in value, consider realising gains (i.e. selling them) before the year-end to take advantage of the exemption. The calculation for these gains can be quite complicated and so we would advise seeking professional advice before selling.
Investing in EIS/VCT
Investments in Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) can provide significant tax relief. If this is of interest, we recommend speaking to Jim Monger for further advice.
Company Director/Shareholders – Key Tax Planning Considerations
Use Your Tax-Free Dividend Allowance
For 2024/25, you receive a tax-free dividend allowance of £500. If you haven’t used this allowance yet, you may want to do so before the tax year resets.
Use Your Trivial Benefits Allowance
If you're a company director, you can provide yourself and employees with tax-free trivial benefits of up to £50 per benefit, with an annual cap of £300 for directors. These must not be cash or cash vouchers and should not be linked to performance. For more details, read our Trivial Benefits Guide.
Suggested Order for Maximising Your Tax Efficiency
For company directors/shareholders, generally we would suggest considering the following approach assuming no other income:
Draw down a salary of £12,570 to utilise your tax free personal allowance (and to get your stamp for state pension purposes).
Draw down dividends in the basic rate tax band. For 2024/25 the basic rate tax band is £50,270 and so assuming you’ve taken a salary of £12,570 and that you have the reserves in your company to do so, you can take up to £37,700 in dividends and remain within basic rate tax.
Maintain a reserves buffer (equivalent to approximately six months of salary/dividends, depending on lifestyle needs).
Pay into a pension (up to £60,000/year, subject to eligibility and limits).
Pay out dividends in higher tax bands, if company reserves allow. This will attract higher rate tax and so its best to speak to us before doing this if you haven’t spoken to us already. Also, please be aware that having income of more than £60,000 can affect any child benefit your family receives.
This is a general guide so please speak to us to ensure this is suitable for your specific circumstances
The Deadline is 5 April!
If you need assistance with year-end tax planning, please don’t hesitate to get in touch. Taking action now can help you make the most of available allowances and avoid unnecessary tax liabilities.
For pension or investment advice, speak to Jim Monger by clicking the following link: www.millwardmay.co.uk/independent-financial-advisor.
