With the end of the tax year approaching on 5 April, now is an ideal time to make the most of valuable tax allowances and exemptions that may be available to you.
Whether your priority is to top up your retirement fund or support your loved ones, managing your wealth tax-efficiently could help you achieve your goals.
However, many of these allowances and exemptions will reset when the tax year ends. So, if you don’t use them, you could lose them. Keep reading to find out everything you need to know about four of these key thresholds.
1. ISA allowance
ISAs are a tax-efficient way to save or invest as any interest or returns you generate are free from Income Tax, Dividend Tax, or Capital Gains Tax (CGT).
In the 2024/25 tax year, you can add up to £20,000 to a single ISA or spread across several.
There are five types of ISA you might like to use your allowance on:
- Cash ISAs – A savings account that allows you to earn interest free from Income Tax
- Stocks and Shares ISAs – These accounts allow you to invest your money without paying Income Tax, CGT, or Dividend Tax on your returns.
- Innovative Finance ISAs – A tax-efficient account that allows you to invest in peer-to-peer lending (rather than stocks and shares). These are complex accounts and only suitable for experienced investors with a high tolerance for risk.
- Lifetime ISAs (LISA) – A LISA allows you to save up to £4,000 a year (2024/25) towards your first home or retirement – this £4,000 counts towards your overall £20,000 allowance. The government will add a 25% bonus to your contributions, of up to £1,000 a year. Any returns on investment and interest you earn are tax-free. You must be between 18 and 39 years old to open a LISA and you can usually continue contributing to your account until you reach 50. It’s important to note that if you withdraw your money early for purposes other than buying a first home or retiring after 60, you may incur a 25% penalty.
- Junior ISAs (JISA) – Cash JISAs and Stocks and Shares JISAs offer a tax-efficient way to save or invest on behalf of a child. You can pass control of the account to your child when they reach 16, but they can’t make withdrawals until they’re 18. In the 2024/25 tax year, you can contribute up to £9,000 a year to a JISA (or split across both types), and that’s separate to your own ISA allowance.
You cannot roll either your adult ISA allowance or a child’s JISA allowance into the next year. So, if you don’t use them before 5 April, you’ll lose them.
2. Pension Annual Allowance
Your pension Annual Allowance is the maximum amount you can save into pension schemes each year without incurring a tax charge. This limit applies to the total contributions from all sources, including you, your employer, and any third party.
For the 2024/25 tax year, the standard Annual Allowance is £60,000 or 100% of your annual earnings, whichever is lower. However, this allowance may be reduced if your adjusted income exceeds certain thresholds or if you’ve already accessed your pension flexibly.
Pensions offer a tax-efficient way to save for your retirement, as you’ll receive tax relief on any contributions you make, and any returns or growth are tax-free.
If you’re a basic-rate taxpayer, you’ll receive 20% tax relief on your pension contributions. This means that a £1,000 contribution only “costs” you £800. Higher- and additional-rate taxpayers may be able to claim an extra 20% or 25% relief by submitting a self-assessment tax return.
So, it’s worth making the most of your Annual Allowance before the tax year ends.
What’s more, you can “carry forward” any unused allowance from the previous three tax years. So, if you didn’t use your full Annual Allowance in the 2021/22 tax year, you have until 5 April to make the most of it – or lose it.
3. Capital Gains Tax Annual Exempt Amount
If you sell or “dispose of” certain assets – such as investment property or personal belongings that are worth £6,000 or more – you might have to pay CGT on any profits you make.
What’s more, in her Autumn Budget, chancellor Rachel Reeves increased the main rates of CGT. The basic rate rose from 10% to 18% and the higher rate increased from 20% to 24%.
Yet, each year you are entitled to an Annual Exempt Amount which allows you to make gains up to £3,000 (2024/25) without incurring CGT. Happily, the chancellor did not reduce this limit. So, if you have shares outside an ISA, you may want to consider realising gains before 5 April to make the most of this exemption.
Unfortunately, the chancellor did announce that Business Asset Disposal Relief or Investors’ Relief will decrease from 6 April 2025.
Currently, if you’re eligible for either of these types of tax relief, you might only pay CGT at 10% on any gains you make when disposing of qualifying assets. However, this will rise to 14% on 6 April 2025 and to 18% from April 2026.
So, if you are thinking about selling your business, shares in a business, or investments, you have until 5 April 2025 to take advantage of the current rate of CGT relief.
Also, if you don’t use your £3,000 CGT annual exemption, you can’t carry it forward. As such, you might want to make the most of it before the tax year ends.
4. Inheritance Tax annual gifting exemption
If the value of your estate exceeds certain thresholds, your beneficiaries could face an Inheritance Tax (IHT) bill when you pass away.
The standard IHT rate is 40%, which is payable on the amount of your estate that exceeds the nil-rate band – £325,000 (2024/25). If you choose to pass on your home to a child or grandchild, you may also be entitled to up to an additional £175,000 (the residential nil-rate band).
Fortunately, your annual gifting exemption allows you to give away assets each tax year IHT-free (up to £3,000 in 2024/25). Additionally, if you didn’t use your full exemption last year, you can carry this forward. If you have a spouse or partner, you could also combine your individual annual gifting exemptions and give away up to £6,000 IHT-free.
As such, gifting some of your wealth during your lifetime could be an effective way to reduce a potential IHT bill. You may also enjoy seeing your loved ones benefiting from their inheritance.
So, if you haven’t yet used your annual gifting exemption for this tax year or the previous one, it’s well worth considering sharing some of your wealth before 5 April rolls around.
Get in touch
If you’re unsure about which tax allowances and exemptions you may be eligible for, and you’d like support managing your wealth tax-efficiently, we can help.
Please get in touch by emailing info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can assist you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning or estate planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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