Don't forget actions to take by 5 April

As the end of another tax year approaches, it’s time to think about getting your financial affairs up to date. Whether this means making payments into an ISA or pension contributions, or using other available tax allowances, it can be difficult to find the time and energy to work out what you need to do. We can’t take all of the pain away, but our summary below will at least make sure that you cover the important areas.

1. Personal allowances and tax bands

The annual income tax personal allowance for 2024/25 is £12,570, and various tax rate bands apply for income above this amount, as detailed in RSM’s Tax Facts 2024-2025.

Family businesses may be able to pay dividends, or salaries and bonuses (so long as these payments are for actual work performed) to family members with low levels of income, and trustees may be able to consider distributing available income to relevant beneficiaries. This may ensure such family members can make use of their personal allowance.

The personal allowance is progressively reduced where income is between £100,000 and £125,140, creating an effective 60% tax rate within that banding. Making pension contributions or charitable donations (see below) can both be very effective in mitigating the effect of this.

2. Pension contributions

If your qualifying earnings are no more than £260,000 in the current tax year, the maximum annual pension allowance is £60,000. For higher earners the allowance is reduced, as income increases, to a minimum of £10,000. In addition, unused allowances from the previous three tax years can also be set against current year contributions. Although the maximum tax-free lump sum you can withdraw on retirement is capped at £268,275, there is no longer a limit to the size of your pension fund. Forthcoming proposed changes to inheritance tax (IHT) on pension savings from 6 April 2027 will also have an impact on your overall IHT position, so take appropriate professional advice before you act.

3. Charitable giving

Charitable donations qualify for tax relief. The mechanics can be confusing, but the net effect is that if, for example, a 40% taxpayer makes a cash donation of £100, the charity receives £125 and the individual can personally claim back further tax of £25.

There are some traps to watch out for when making charitable gifts. If you make a donation under Gift Aid and have not paid sufficient tax to match it, your tax liability will actually increase - a Gift Aid payment of £100 by a non-taxpayer will make them liable to pay tax of £25. Not all donations qualify for tax relief either. For example, a gift to a US charity will not be allowable, but a gift to a UK charity created to support the US charity would be. Make sure that you check that your payment is going to the right entity, or else both you and the charity will miss out on relief.

4. Tax efficient gifting

Although taxpayers may be subject to IHT on gifts they do not survive by seven years, they have a £3,000 annual gift exemption, which can be carried forward one year. This means that you can make gifts of up to £6,000 every other year without suffering any IHT if you do not survive the gift by seven years.

If your income is greater than your living expenses, you may also be able to make larger gifts that will not be taxed regardless of when you die. To qualify, these must form a regular pattern of giving, should be out of income not capital, and should be properly documented. You should take appropriate professional advice before proceeding with such a strategy.

5. EIS and SEIS allowances

Tax relief is given for certain investments in qualifying trading companies under the enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) rules, where the company concerned has obtained approval from HMRC. Income tax relief at 30% (EIS) and 50% (SEIS) on the amounts invested can be attractive, as well as exemption from capital gains tax on disposal and the possibility to roll over (EIS) or partially exempt (SEIS) capital gains on other assets reinvested into such investments.

Watch out when making these investments though. To qualify for capital gains tax exemption, you must have claimed income tax relief on the EIS or SEIS investment. For example, if you make an EIS investment in a year when you have no income tax liability, the gain made on the subsequent disposal of that investment will be taxable.

6. Saving capital gains tax (CGT)

The 2024/25 CGT annual exemption is £3,000. Disposing of investments standing at a gain to utilise this amount may save tax of up to 24% - a modest maximum of £720. This tax saving is not to be sniffed at, but it may not be worth the economic risk if you want to hold the asset long-term. If you buy the asset back within 30 days of disposal, you will be treated for CGT as though it was never sold, so if prices go up in that period you could miss out on growth in value that exceeds the tax saved.

7. Non-doms and residence

For some non-UK domiciled individuals thinking of leaving the UK, there will be a big advantage of becoming non-UK tax resident from 6 April 2025 rather than remaining resident into 2025-26. The opposite may be the case for recent arrivals in the UK – if you have been here for fewer than three tax years, delaying the receipt of non-UK income and gains until 6 April 2025 could be very beneficial. These are specialist areas of tax, so advice should be taken if you think they may apply to you.

For more information, please get in touch with Andrew Robins or your usual RSM contact.