6 April marks the start of a new tax year and the deadline to take advantage of several HMRC thresholds and allowances.
Keep reading for your rundown of the tax-efficient steps you should consider taking to help ensure you enter 2025/26 in the best possible financial position.
1. Top-up your pension to make full use of your Annual Allowance
The contributions you make to your pension automatically attract tax relief at the basic rate of 20%. This means that the more you contribute, the more of a government top-up you’ll receive. But there are limits.
Your pension Annual Allowance is the maximum amount you can contribute to your pension in a single tax year without facing an additional tax charge. For 2024/25 it stands at £60,000 (or 100% of your earnings, if lower).
If you can afford to, make pension top-ups in the lead-up to the new tax year to make the most of your pension’s tax efficiency. Unused Annual Allowance can be carried forward for up to three tax years, so check your contribution history too in case you have any unused allowance.
Note: Your Annual Allowance might be lower, depending on your circumstances (see below).
2. Be sure you understand the allowance that applies to you
If your income exceeds certain thresholds or you have already flexibly accessed your pension, your Annual Allowance could be lower than £60,000.
The Money Purchase Annual Allowance (MPAA) is triggered when you take pension benefits using certain Pension Freedoms options. It reduces your Annual Allowance to just £10,000.
The Tapered Annual Allowance applies if your “adjusted” income exceeds £260,000 (and your “threshold” income is more than £200,000). The taper reduces your Annual Allowance by £1 for every £2 of income that exceeds the adjusted amount, down to a minimum of £10,000.
3. Claim additional tax relief if you qualify for it
While tax relief applies automatically at 20%, as a higher- or additional-rate taxpayer you can claim an extra 20% and 25% respectively via your self-assessment tax return or directly with HMRC.
Check out our 2024 blog, “How to claim your extra pension tax relief and why you should”, for more information.
4. Make full use of your ISA subscription limit
You might also have savings and investments in an ISA. If so, you’ll be pleased to know that these are incredibly tax-efficient too.
As with your pension, there’s a limit on the amount you can contribute each year. Unlike the Annual Allowance though, the ISA Allowance can’t be carried forward. This means that if you don’t use it before 6 April, you lose it.
The ISA Allowance in 2024/25 stands at £20,000, spread across all the ISAs you hold (although the Lifetime ISA limit is lower).
If you can afford to make a top-up now, consider doing so.
5. Help your loved ones to save and invest tax-efficiently too
It’s worth remembering that planning your finances as a couple, or even as a family, has some advantages. If you have used up your Annual Allowance or made your full ISA subscriptions for the year, you might make use of any unused allowance your loved ones have.
Consider topping up the pension of your spouse or child, or transferring money for them to invest in their ISA.
If you have opened a Junior ISA (JISA) for a child, remember that the JISA Allowance is lower than for a full adult ISA. For 2024/25, the JISA Allowance stands at £9,000.
6. Make tax-efficient gifts to lower the value of your estate
While you can make as many gifts as you like during a tax year, you’ll usually have to survive another seven years before they fall outside of your estate for Inheritance Tax (IHT) purposes.
Some HMRC allowances, though, allow you to give gifts that are IHT-free from the moment they are made. One such allowance is the annual exemption.
This allows you to gift up to £3,000 a year, with the option to carry forward unused allowance for up to a year. Check with your partner too to see if they have used their allowance this year or last. If not, you could gift up to £12,000 tax-free before 6 April 2024.
7. Time disposals and pension withdrawals carefully
Sometimes, the timing of the decision you make can have significant tax consequences. Remember that many allowances (including the ones discussed above) reset on 6 April.
If you’re considering making a large pension withdrawal or you expect to realise a large gain on an asset disposal, be sure to talk to us first. You might find that splitting a withdrawal or sale over two tax years could be more tax-efficient.
Get in touch
If you have any questions about your long-term retirement plans, speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
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.
