As we approach the end of the 2024/25 tax year, now is the perfect time to consider tax planning before we reach 6 April 2025.

Pension contributions

If you are a member of a pension scheme, have you utilised your annual allowance for the current tax year?  You are able to utilise any unused allowances from the last three tax years (so for 2024/25 this relates to 2021/22, 2022/23 and 2023/24).

The annual allowance is currently £60,000 (£40,000 for 2021/22 and 2022/23).  This can be tapered down to £10,000 (£4,000 for 2021/22 and 2022/23), and will apply if your total income along with your pension contributions made by your employer (which includes contributions made by you before tax) exceed £260,000.

Be mindful if you have the option to make flexible drawdowns, as this will limit your allowance to the minimum. Any contributions exceeding your available allowances will be taxed at your marginal rate.

Please note that if you do not have income in a tax year, then a contribution can be made up to £2,880 with a further 20% contribution made by HMRC, so that your total contribution is £3,600.

In addition to contributions to your own pension, you can also make contributions of up to £2,880 towards a Junior SIPP for the benefit of your child/children.  The £2,880 limit is per child, though the contributions are increased for an additional 20% by HMRC, making the total contributions made each year up to £3,600.

If you would like to discuss your available pension allowances or would like to check you haven’t already exceeded them, please reach out to your usual contact at Goodman Jones.  We always recommend taking financial advice when it comes to making pension contributions and we can put you in touch with a trusted IFA if you do not have one already.

Individuals savings account (ISA) allowances

The current ISA allowance is £20,000 and this can be invested with cash as well as stocks and shares, along with other select investments.  There is also a Junior ISA, where parents or guardians can invest for their children that are under 18.  The current Junior ISA allowance is £9,000.  Once the child turns 18, the Junior ISA becomes an adult ISA.

Any income generated and capital gains realised on assets held within an ISA are all tax free.  Please note that the allowances must be used before 6 April 2025 when the limit is reset, and there is no possibility of bringing these allowances forward.

Capital gains tax (CGT) annual exemption & dividend allowance

The annual exemption is a tax-free allowance for CGT, which has been massively reduced in the last few years, currently a mere £3,000 in 2024/25, down from £6,000 in 2023/24.  This does not get rolled forward, so will be lost if not used before 6 April 2025.

The dividend allowance has also been squeezed down in recent years to just £500 in 2024/25, down from £1,000 in 2023/24.  Again, if this is not used before 6 April 2025 then the allowance will be lost.

Inheritance tax (IHT), reliefs & exemptions

There are various gifting exemptions and reliefs that allow you to reduce your estate in an IHT-efficient way:

• Annual exemption of £3,000 – This applies per individual per year and the gift can exceed £3,000.  You can carry forward any unused allowances for one year, e.g., you can utilise any unused exemption available from the 2023/24 tax year or carry forward your unused allowance to 2025/26 from the current tax year.
• Small gift exemption of £250 – This applies per recipient per year and the gift must not exceed £250.  There is no limit to the number of different recipients this can be used for.
• Gifts made on the occasion of marriage/civil partnership – Gifts are tax free when gifts are made, depending on the relationship between the gift giver and the recipient.  Up to £5,000 to a child, £2,500 to a grandchild or up to £1,000 to any other individual.  These can be used in conjunction with the Annual Exemption of £3,000.

It is good practice that gifts are documented, and we highly recommend that these documents are provided to your tax adviser for safe keeping.  Long term solutions, such as regular gifts out of surplus income (which are also exempt from IHT), could also be explored as part of discussion in relation to long term successions plans.

Tax-incentivised investments schemes

There are three main tax-incentivised investment schemes: Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCT).

Enterprise Investment Scheme (EIS) & Seed Enterprise Investment Scheme (SEIS)

If a trading company you are invested in meets certain qualifying conditions, then tax can be reduced by 30% off the subscriptions cost under the scheme up to £1 million.  In addition, if the shares are held for three years, then when the shares are sold, any gains are exempt from CGT. There is also potential for an element of any losses to be set against general income.

SEIS is an alternative to EIS and is relevant for smaller startup trading companies.  Relief is available for up to 50% of the subscription amount up to £200,000 and the asset is exempt from CGT if held for more than three years.

With EIS & SEIS, you may also carry back your income tax relief on the investment to a previous tax year, so you do not need to make a qualifying investment by 5 April 2025 for 2024/25.

Under the SEIS, if you realise a capital gain at a similar time to the investment then the proceeds can be treated as being used to invest in the company and 50% of the capital gain realised is exempt from CGT.  There is a similar concept for EIS, but this freezes the total gain rather than removes half of the gain from charge. These could be valuable reliefs if you intend on realising large capital gains.

Venture Capital Trusts (VCT)

You can invest in companies that are listed on the London Stock Exchange who in turn invest in various innovative startups, rather than investing directly yourself.  30% of the amount subscribed in a qualifying VCT is used to reduce your tax in the year of subscription (so no carry backs are available).  So long as the maximum that is invested is £200,000, all dividends received are tax free and there is no CGT on the disposal (the ownership period is irrelevant).

Whilst we cannot advise on what investments to make, we can discuss the tax aspects with you as well as put you in touch with an IFA who can discuss the suitability of any investments, including the criteria of the companies.  It is also worth noting that there are circumstances when income tax relief may be withdrawn.

As we approach the end of the 2024/25 tax year, now is the perfect time to consider tax planning before we reach 6 April 2025.