As the end of the tax year approaches, it is crucial to take the time to assess your financial strategies and ensure you’re making the most of your available tax allowances and reliefs. Proper planning can help you reduce your tax liabilities, preserve your wealth, and set a strong foundation for future growth.
Why end of tax year planning matters
The end of the tax year offers an opportunity to review your financial position and ensure your wealth and assets are optimised for maximum tax efficiency. Many tax-saving allowances reset annually, meaning that your unused allowances (and tax efficiency opportunities) will disappear when the tax year ends.
Key areas to address
1. Pension contributions
Contributing into a pension is one of the most tax-efficient methods to put aside money for a comfortable future. The annual allowance of £60,000 (or your qualifying annual earnings, whichever is lower) offers valuable tax relief at your marginal income tax rate. You can also carry forward unused allowances from the past three tax years, offering significant tax-saving potential.
2. ISA allowances
Individual Savings Accounts (ISAs) offer a tax-free method of saving and investing. With an annual limit of £20,000, they shield your investment returns and interest from the tax they would attract in regular savings and investment accounts. You can put your entire £20,000 allowance into a Cash ISA or a Stocks and Shares ISA, or you can distribute your allowance between different ISA accounts.
There are also some specialist ISAs designed to help you achieve specific financial goals:
- A Junior ISA can be set up by anybody with parental responsibility on behalf of a child under the age of 18, provided that child doesn’t already have a Child Trust Fund. The annual savings limit is currently £9,000.
- A Lifetime ISA is designed to help you save for a home or for retirement. You can save up to £4,000 into a LISA every year and receive a bonus of up to £1,000 from the government.
3. Capital Gains Tax (CGT) allowance
With the CGT allowance now reduced to £3,000 (£1,500 for trusts), it’s essential to plan carefully. Consider realising gains on assets to make the most of this exemption or offset gains with losses to reduce your liability.
4. Charitable giving
Donations to registered charities offer significant tax benefits. Not only does Gift Aid boost the value of your donation, but higher-rate taxpayers can claim additional relief through their Self-Assessment tax return.
5. Income and allowance management
If you’re nearing a higher tax bracket, strategies such as upping your pension contributions, making use of salary sacrifice schemes, or redistributing your income between you and your spouse can all help to optimise your taxable income and allowances.
The role of cashflow modelling
Cashflow modelling is a valuable tool, both at tax year-end and all year round. It uses historic and current financial data to project your financial future, taking into account factors such as your current income, expenses and investments and helping you understand:
- How much to allocate monthly to maximise tax efficiency
- Potential shortfalls and ways to address them
- The impact of tax planning decisions on long-term goals, such as retirement
- The level of investment risk required to meet your objectives.
Download our free end of tax year planning guide
To help you understand your end of tax year planning options, we have also produced a comprehensive guide to end of tax year planning, outlining your various tax allowances, reliefs and exemptions. It is an essential resource for individuals seeking to optimise their finances and reduce their tax liability ahead of year-end.
Should this article have interested you and you wish to find out more about end of tax year planning in more detail, click here to fill in a short form and download the guide.
For personalised advice and guidance, please also feel free to get in touch with our expert advisers on 01276 34932 or email hello@s4financial.co.uk.