1. Individual Savings Accounts (ISAs) – Use it or lose it

ISAs are tax-efficient savings and investments as they are exempt from income and Capital Gains Tax (CGT).

The ISA allowance is £20,000 per individual, enabling tax-free growth on savings across different ISA variants, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and the Lifetime ISA.

The Lifetime ISA limit is £4,000 per tax year and comes with a government bonus of 25%, this is attractive for first time buyers.

With the rise in interest rates and frozen tax rates, the tax-free nature and withdrawal flexibility remains attractive to savers.

2. Pension planning to secure your future

Individuals can contribute up to £60,000 (gross) into a pension scheme. This allowance may be reduced for any individuals whose income is in excess of £200,000. The amount that you can contribute personally and receive tax relief on is also capped by your earnings. If you do not have any earnings during the tax year, you are able to make a maximum net contribution of £2,880 (effectively, £3,600 gross). Employer contributions are not capped by earnings.

Personal pension contributions attract basic rate tax relief at source and therefore the £60,000 gross contribution only requires a £48,000 personal payment.

The pension contribution increases your basic rate threshold and therefore if you are a higher or additional rate taxpayer you will receive additional tax relief on the contribution made via your tax return.

Furthermore, the pension contributions effectively increase the threshold at which the personal allowance is reduced and Child Benefit is clawed back. Special rules exist the carry back the last three years of unused allowances, with the oldest year being utilised first.

Most pensions also benefit from being free from the estate for Inheritance Tax (IHT). There are a few specific situations where pensions could be caught by IHT but the majority enjoy tax free status on death. In addition, the growth on the initial contributions remain tax free over an individual’s lifetime.

3. Tax free dividend income

The dividend allowance has decreased to £500 for the 2024/25 tax year, be sure to utilise this as unlike pensions, the dividend allowance is lost if not used.

The dividend tax rates are 8.75%, 33.75%, and 39.35%, depending on what tax band you fall into.

4. Split the bill

Sharing income generating assets with a spouse remains a prudent tax planning strategy. By transferring ownership of assets to the lower income spouse, couples can leverage both individuals' tax allowances, effectively reducing the household's overall tax bill.

5. How to protect your wealth from IHT

Each tax year, you are allowed to gift £3,000 without any IHT implications. Gifts of more than £3,000 made to an individual can later become subject to IHT if you pass away within seven years.

Any unused allowance from the previous tax year is also carried forward, and if you did not make gifts of £3,000 in the last tax year, you could gift up to £6,000 before 6 April 2025 with no IHT consequences.

There is an exemption for IHT, "normal expenditure out of income." This exemption allows for regular payments from an individual’s income to be exempt from IHT under certain conditions.

To qualify, these payments must be:

• part of a consistent pattern, for example monthly or yearly, and
• should not significantly impact the donor's standard of living.
  

There is no fixed limit on the amount exempted, it is recommended that donors retain evidence the distributions are regular, out of normal income and do not impair the donor’s standard of living.

6. Changes to High Income Child Benefit (HICBC) could make claiming worth while

Child Benefit is repayable to HMRC if the earnings of one parent exceed £60,000, prior to 6 April 2024 this was £50,000. As a result, many individuals who previously had to repay the benefit now are not required to and for some, this may even result in them not needing to file a tax return.

In addition to the increase in the repayment threshold, the amount you repay has been changed. Now, for every £4, you earn over £60,000, you will have to repay £1 in Child Benefit.

For those who disapplied the Child Benefit due to the benefit being fully clawed back, it is worth reconsidering with the change of rates.

7. Disposing of a capital asset? Think about Capital Gains Tax

The capital gains annual exemption remains a consideration for individuals looking to dispose of assets without paying any Capital Gains Tax (CGT). For the 2024/25 tax year, the annual exemption has reduced to £3,000. Any gains above this amount will be subject to CGT at 18/24% for residential properties and 10/20% for all other assets. The rate is dependent upon your total income for the 2024/25 tax year.

8. Flat £1,000 deductions for landlords and traders

Self-employed individuals and property owners benefit from specific allowances tailored to their circumstances. For the 2024/25 tax year, traders and landlords can deduct a flat rate £1,000 allowance against each business. This is a tax efficient deduction when actual expenses are less than this amount.

9. Providing for the next generation

Junior ISAs (JISAs) offer tax-free growth, with contributions up to £9,000 annually, benefiting children under 18 living in the UK. JISAs come in two forms, cash ISAs and stocks and shares, you can choice one or both JISAs.

Pensions for minors provide tax relief on contributions and potential IHT advantages, although access is restricted until retirement age. Most children do not have income, you can usually pay up to £2,880 into a child’s pension for 2024/25 (includes 20% tax relief from government resulting in total contribution of £3,600).

Trusts can be a valuable vehicle for grandparents to provide for the grandchildren, while diminishing their estate for IHT. This can be particularly effective for funding grandchildren’s school fees. This area is complex and if you would like to understand more, please contact us .

10. Thinking about a new car? Consider the tax incentives for an EV

Tax implications surrounding Benefits in Kind (BIK), particularly electric vehicles (EV), justify attention in the new tax year. There are great incentives around running an EV through a company due to the exceptionally low BIK rate of 2% compared to the staggeringly high BIK rate for traditional combustion engine vehicles.

EVs also qualify as an eligible salary sacrifice deduction. If your employer runs an EV salary sacrifice scheme, you can opt to deduct a proportion of your salary for an EV before income tax and national insurance. As such, this makes owning a new EV a lot more affordable for the masses.

This is intended as a summary and overview of the tax situation and does not constitute financial advice. No action should be taken without first seeking professional advice specific to your circumstances.