End of tax year planning – have you utilised all your allowances? Act now
End of year tax planning is an important element of both an individual’s and a business’s tax strategy. This helps to ensure that all tax reliefs and allowances available have been utilised in the current tax year. It is also an ideal opportunity to take a wider review of your circumstances and plan for the year ahead.
With so many tax changes announced in the Autumn Budget, especially many facing owner-manager businesses, early planning is vital.
With the new tax year starting on 6 April 2025, it is important to act now to allow adequate time before the end of the tax year to implement any changes following a review.
This makes it more important than ever to undertake a detailed review to identify any tax savings in the current year and plan for the year ahead.
The Chancellor has confirmed that a Spring Statement will be is provided to Parliament on Wednesday 26 March 2025. Whilst the government has indicated its commitment to one fiscal event a year, additional tax changes may still be introduced. We will provide an update on this once the announcements have been made.
Below we provide a useful guide of what individuals and businesses should consider.
Tax Changes
There are several significant tax changes already scheduled to be implemented in April 2025, which may significantly affect you. These are discussed below, but in summary, these include:
- Stamp Duty Land Tax (SDLT). The previous two-year stamp duty holiday is coming to an end. This means that that the starting threshold for SDLT will revert down to £125,000 (from the current level of £250,000)
- Merged R&D scheme takes effect. The merged R&D scheme comes into effect.
- National Insurance: Employers National Insurance contributions are increasing at the same time the threshold in which they become due is being reduced.
- Furnished Holiday Lets tax regime abolished. As confirmed in the Autumn Budget. FHLs are being abolished
- Business Asset Development Relief. The rate will be taxed at 14% (rather than 10% from April 2025), This will be reduced further from April 2026 to 18%.
Additionally, reductions in Business Property Relief and Agricultural relief effective from 2026 are significant for owner-managed businesses. Planning for these should start immediately.
For advice or guidance on end of year tax planning, please do not hesitate to contact our specialist tax team. We can provide a comprehensive review, tailored to individual needs and circumstances.
The summary below outlines some of the key tax issues that you should now be considering. This will help to ensure you utilise the maximum tax savings and all reliefs and allowances available are being fully utilised:
End of year tax planning – personal tax
Income Tax and National Insurance
The personal allowance for income tax this year (2024/25) is £12,570. This cannot be carried forward, so it is important to try and use this. It remains at this amount for the following tax year as well.
There may be a benefit to ensuring a salary is paid at least the lower earnings limit of the National Insurance threshold of £6,396. This will ensure that credit is obtained for the years contributions towards the state retirement pension. Furthermore, drawing a salary of up to £12,570 can maximise the use of personal allowances and reduce corporation tax. This is without paying class 1 National Insurance contributions.
Dividends
A straight-forward point to consider is whether you have made full use of the current tax-free dividend allowance of £500. This is available to everyone and not restricted by earnings. So if you are an owner-manager with profits available to distribute, taking a £500 dividend is a no brainer. If you have not yet taken advantage of this in the current tax year, consideration should be given as to whether it is advantageous to pay this before 6 April 2025.
Therefore, if you intend to pay a dividend greater than £500 in 2025/26 tax year and haven’t used the full £500 tax-free allowance in the current (2024/25) tax year, consideration should be made to making part of this payment early.
It may also be advantageous to pay a larger dividend, rather than a salary above £12,570. This may raise National Insurance contributions.
Salaries
If you are considering paying a salary in the 2025/26 tax year above the thresholds mentioned above and haven’t yet, it may be prudent to consider further payments before 6 April 2025 as an alternative.
Spouses and civil partners
An individual may be able to transfer 10% of their personal allowance to their spouse or civil partner. This is providing they both meet certain criteria. This could reduce their tax bill by up to £252 in the tax year. An election to do this can be made up to four years after the end of the year in which it relates.
Pensions
Pensions are generally very tax-efficient, with £60,000 being able to be paid in from the 2024/25 tax year. This is if your income is less than £200,000. If your income exceeds £200,000 and have an ‘adjusted income of £260,000, the amount you can put into your pension and receive relief is restricted. Any unused amounts can be carried forward and used in the following three years.
The pension lifetime allowance (LTA) was abolished on April 6, 2024 (although this may change in the future).
Additional tax threshold remains at over £125,140
The level at which individuals pay the additional rate of income tax (45p) was reduced in 2023. Where this takes you into this additional tax threshold, it will be worth considering what options are available to become more tax efficient.
Inheritance Tax
Gifts of up to £3,000 a year can be made without any implications for inheritance tax. This can be carried forward for one year.
Tax-efficient investments and end of year tax planning
ISAs are a tax-efficient way to save for higher rate taxpayers. The maximum allowance is £20,000.
Tax relief is available when investing in Enterprise Investment Schemes and Seed EIS Shares. Tax relief is available when you subscribe to shares that meet the qualifying criteria for each scheme. Under the EIS scheme, tax liability for the year may be reduced by up to 30% of the amount invested. It also has the benefit that capital gains from disposals can be reinvested into the scheme. This allows a deferral of the gain.
Capital Gains Tax
The 2024/25 annual allowance is £3.000, which cannot be carried forward. It is always worth checking if this has been utilised correctly if you have disposed of any assets, including businesses and property. If you are in the process of selling a business or property, professional tax advice should be sought, as to the most tax-efficient way of structuring a deal.
If gains are made in the year, these can be set against any losses occurred in the same year. It is therefore worth considering disposing of any assets that are standing at a loss to balance these gains.
Note that from 30 October 2024 the rates for non-residential property increased inline with residential property (18% and 24%).
Private Residence Relief and Lettings Relief
Private Residential Relief and Lettings Relief were considerably reduced in April 2020. Notwithstanding this, it is important to make sure, where eligible, that you take full advantage of these reliefs.
Private Residence Relief (PRR) currently allows an additional grace period of the last nine months of ownership. Lettings Relief is now limited and is available if you share your home with a tenant or have moved into care. If your property has increased in value since purchase, this can still have a significant impact on your capital gains tax bill.
With the confirmed changes to Capital Gains Tax, and the potential for further changes, it is important to seek advice if you have disposed of property in the current tax year or are expected to do so in the future.
Stamp Duty Land Tax
Since 6 April 2019, non-residents have been liable for capital gains tax on gains made on property and land in the UK.
From 1 April 2021 non-UK residents incur a 2% Stamp Duty Land Tax surcharge on purchases of residential property.
There were changes to SDLT mid-year which you should be aware off:
- Taking effect from 31 October 2004, the higher rates of SDLT for purchases of additional dwellings and purchases by companies increases to 5% (from 3%). This is in addition to the standard residential rates of SDLT.
- Also from 31 October 230204, The single rate of SDLT payable by companies and other non-natural persons purchasing dwellings that are not used for business purposes over £500,000 increases from 15% to 17%.
Stamp Duty rates have regularly changed over the past few years and are changing again in April 2025.
Because SDLT rates often vary, it would be prudent to check that the correct rate has been applied to any transactions.
GET IN TOUCH WITH A TAX ADVISOR FOR MORE INFORMATION ON END OF YEAR TAX PLANNING
Additional end of year tax planning considerations for businesses
Group structures
Consideration should be given to reviewing group structures before the ned of a tax year. this will ensure that companies are as tax efficient as possible, whilst the businesses commercial goals are met. Please contact Alexander & Co if you would like more information on the benefits of this.
Annual Investment Allowances
The Annual Investment Allowance was increased in Budget 2018 from £200,000 to £1m from January 2019. This level was made permanent in 2023. Currently up to £1m of qualifying expenditure is available for 100% relief in the year it was incurred.
Capital Allowances
It is always important to review expenditure, which may qualify for Capital Allowances Relief. Alongside plant and machinery, this includes research and development (see below), patents, specific intellectual property and buildings and renovating business premises in specific areas, amongst other items.
There are strict deadlines for claiming capital allowances. Capital Allowances can offer very generous tax allowances of up to 100%. this can result in significant tax savings and these should be considered carefully.
Research and Development Tax Relief changes that may affect end of year planning
Many businesses miss out on this generous type of relief. This is often because they incorrectly believe that they are not eligible to receive it. It is always worth taking advice to review your specific circumstances, to ascertain if you are eligible to claim.
A common misconception is that R&D tax relief only applies to science and technology companies, or those with specialist research and development departments. In fact, all industries can reap the benefits from R&D Tax Relief, providing the project either seek to advance their knowledge, improve a service or product or solve uncertainties in a process.
It is important to review this before the tax year-end as deadlines will apply, dependent upon when the work was completed.
Where applicable, our R&D tax team will be able to advice you and agree a strategy to help you claim R&D tax credit. More information on how we can help you with R&D tax credit can be found here.
Full expensing tax relief
Super deduction was replaced in 2023 by full expensing. From April 2023 until 31 March 2026, companies can claim 100% capital allowances on plant and machinery investments which qualify.
Full expensing provides a mechanism for companies to write off the cost of investment in one go. Through full expensing, every pound a company invests, reduces their tax by up to 25 pence.
Given that this generous tax relief, it would be prudent to take advice now. This should include how to maximise this relief on any expenditure undertaken or planned up to 2026. This includes exploring the tax benefits of bringing any planned expenditure beyond this period forward, in order to utilise this relief. Please contact us for further advice.
IR35 roll out to the private sector
On 6 April 2021, changes came into effect regarding off-payroll working for intermediaries and contractors. These were originally due be implemented in 2020 but were delayed due to Covid-19.
Kwasi Kwarteng, the then Chancellor proposed to reverse much of the changes to IR35 in the mini budget of 2022. However these were overturned by his successor, Jeremy Hunt and these now stand.
In a nutshell, many private companies that employ contractors are now liable to pay their tax and national insurance contributions where IR35 applies to their circumstances.
IR35 rules are complex and if organisations get them wrong, they risk taking on their contractors’ tax liability. This can be significant, in addition to fines.
Since April 2021, all medium or large-sized private sector clients (as well as all public sector clients) are responsible for deciding their worker’s employment status. This includes some charities and third sector organisations.
If IR35 off-payroll working rules apply, your worker’s fees will be subject to tax and National Insurance contributions. If these are not paid, it will be yourself who remains liable for these charges, not the contractor.
It is important that anyone using contractors or intermediaries is familiar with these rules and has carried out an assessment to determine their worker status. Further information on this can be found here. For assistance on this matter, please contact us.
End of year tax planning for Property Investment Businesses
For residential buy-to-let investors, since April 2020, mortgage interest is only eligible for income tax relief at the basic rate of 20%, regardless of tax bracket.
This may have resulted in increased taxable income, increasing certain thresholds, which could reduce eligibility for child benefit, personal allowance or pension savings annual allowance, and push some taxpayers into a higher tax band.
For these reasons, it may be beneficial to consider the merits of setting up a limited company for buy-to-let properties that you hold personally. More information on this can be found here.
End of year tax planning – Other items to consider
The tax year-end also provides an opportunity to review your business activities, and to look at ways to be more tax efficient. Other items to consider include:
Accounting dates – is your own year-end date at the most useful point in the year for your company? Would it be advantageous to align this with a key date in your business calendar?
Incorporation – If you trade as a sole trader, a partnership or an LLP, it is a good point in the year to review your circumstances to ascertain if it would be more tax-efficient to incorporate as a limited company.
Succession planning and IHT for owner managed businesses – Business Property Relief alongside Agricultural Property Relief is being significantly restricted from 2026. The current rate of relief will continue at 100% for the first £1 million of combined business and agricultural assets on top of the existing nil-rate bands. The rate of relief will reduce to 50% after the first £1 million. AIM shares will be restricted to 50% relief on all their value.
This will require action and tax planning in 2025 to mitigate this. our advice is to act now.
By example, if a person passes holding shares in a trading company worth say £10m then currently there would no IHT. There would be £1.8m of IHT wen the new rules are applied.
We can provide advice on mitigation strategies to help combat this increase. Family businesses need to be considering succession planning early. If this applies to your circumstances, please contact us to discuss this with our tax team further.
Contact Alexander & Co for further advice regarding end of year tax planning
For further advice and guidance, contact our expert tax team on 0161 832 4841. Aternatively, you can email info@alexander.co.uk or fill out the form below and we will contact you.
