2024/25 UK tax year end planning

Where available, you are entitled to a tax-free personal allowance of £12,570 for 2024/25, with the next £37,700 being taxed at 20% (the basic rate). Income between £50,271 and £125,140 is taxed at 40% (the higher rate), and anything over £125,140 is taxed at 45% (the additional rate). There are different rates of tax for Scottish taxpayers.  

There are different rates for dividends applicable to these Income Tax bands of 8.75%, 33.75%, and 39.35% respectively. However, the first £500 of dividends received are not subject to tax for all taxpayers regardless of their income levels, under the dividend allowance.  

The Personal Savings Allowance (PSA) is available to basic and higher rate taxpayers. If you’re paying tax at 20%, the PSA is £1,000 per annum and this is reduced to £500 per annum for higher rate taxpayers (additional rate taxpayers are not entitled to a PSA). If you have material savings, which is certainly more common with the current higher level of interest rates, you should therefore track your savings income and consider the use of an Individual Savings Account (ISA) (see the ‘Tax-efficient investments’ section below) or other tax-free investments. 

The personal allowance is phased out on income between £100,000 and £125,140, effectively creating a marginal tax rate of 60% (plus 2% National Insurance, if applicable) on income within this bracket. This can be reduced through the use of Gift Aid donations and pension contributions.

What should you do?

Ensure that there is sufficient income generated, where possible, to make best use of your personal allowances and basic rate bands. As the personal allowance and tax bands will be frozen for a further three years (i.e. until 5 April 2028), it’s more important than ever not to waste them. To do this, you could consider the timing of dividends, trust distributions, and pension withdrawals. In addition, income-producing assets can be transferred between spouses without any liability to Capital Gains Tax (CGT) to ensure that both spouses are utilising their lower rates of tax and tax-free allowances. 

Where your income is in the £100,000 to £125,140 bracket, consider the possibility of additional Gift Aid donations or pension contributions. 

If you make a charitable cash donation within the scope of a Gift Aid election, you can obtain Income Tax relief at your marginal rate on the grossed-up amount of the gift. This covers UK registered charities and certain charitable organisations within the European Economic Area (EEA). Correspondingly, the charity can reclaim the tax equivalent of 25% of the cash gift.  

For example, if you’re a higher rate taxpayer (40%) and you donate £100 to charity, your basic rate band is extended by £125. Provided you pay at least £25 of tax, the charity reclaims £25 (20% of £125) from HMRC. You would also benefit by £25, by virtue of paying tax at 20% instead of 40% on the income matched to the grossed-up donation of £125. 

If you’re an additional rate taxpayer (whose marginal rate is 45%), you would get enhanced relief of £31.25, (i.e. 25% of £125 in the above scenario). The rates of relief associated with charitable donations differ where Income Tax relief is given in respect of dividend income (as this is subject to different rates of tax, as set out above).  

You can donate assets other than cash to charity, such as qualifying land or shares. In this case, the market value of the land or shares donated to charity is deductible from your general income, providing relief at your marginal tax rate (up to 45%). 

You also have the ability to carry back donations to the previous year. Therefore, to accelerate the tax relief on your donations we would recommend using the carry back facility on donations made in 2025/26, if you have paid sufficient tax to do so.  

What should you do?

Consider whether you wish to make any further charitable donations in 2024/25 before the end of the tax year. As mentioned above, this may assist with reducing the amount of your taxable income subject to marginal rates of 40%, 45% or 60%. If you’re planning on making large charitable donations, consider whether it would be beneficial to do so in the current tax year or to wait until the start of 2025/26. This may be particularly relevant if, for example, you are considering making larger donations of land and shares and would benefit from a higher rate of tax relief in 2025/26. You should also bear in mind that you need to have paid enough Income Tax and CGT to frank the 25% claimed back by charities using Gift Aid, or else your tax liability increases to match that amount.

Pension contributions

When you contribute to a personal pension (other than via salary sacrifice), you can be eligible for tax relief at your marginal rate. As with donations made under Gift Aid, your basic and higher rate tax bands are extended by the grossed-up pension contribution so that you obtain tax relief at your marginal rate. Relief is limited by the lower of your relevant earnings and the annual allowance. Pension contributions in excess of the annual allowance are subject to the annual allowance charge, which effectively claws back the marginal rate tax relief.  

The annual allowance for 2024/25 is £60,000 (grossed-up), subject to tapering if total income and employer contributions exceed £260,000 to a minimum allowance of £10,000 (net £8,000). 

What should you do?

Consider whether you wish to make any further pension contributions in 2024/25, in particular and where appropriate, ensuring that you do not lose allowances from previous years. In 2024/25, unused allowances from 2021/22 to 2023/24 can be utilised and any unused allowance for 2021/22 will be lost if it is not utilised before 5 April 2025. 

Click here for more information on pension contributions.

Optimising your State Pension

With a rise to the State Pension age up from 66 to 67 (and then to 68 in the longer term) it is important to check your entitlement and that you have a full National Insurance record.  

Usually, you are able to only pay for gaps in your National Insurance record for the past six tax years. However, you now have up to 5 April 2025 to make voluntary contributions for the period from 6 April 2006 to 5 April 2023. This deadline has been extended twice by HMRC and highlights the need to review your State Pension benefits, but the deadline is closing in rapidly. 

What should you do?

If you are unsure if you have a complete National Insurance record and you are close to State Pension age, it is worth considering requesting your State Pension forecast to understand what it currently looks like and the costs to voluntarily contribute to top it up. We recommend that you seek financial advice before deciding if voluntary contributions are appropriate. Equally, checking your National Insurance record is recommended in case there are any gaps in HMRC’s records.

There are a number of tax-efficient investments you may wish to consider in order to reduce your tax liability. 

Individual Savings Account (ISA)

An Individual Savings Account (ISA) is available to all UK resident individuals aged 18 or over. The annual overall subscription limit for an ISA for 2024/25 remains at £20,000 with no provision to carry-forward unused allowances into later years.  

ISAs can be invested in cash or certain investments such as stocks and shares. There are also Junior ISAs available for those under 18 with an annual limit of £9,000. The main benefit of ISAs is that Income Tax and CGT do not apply and additionally when an ISA is inherited from your spouse or civil partner on their death, it can continue to qualify as an ISA. 

Those wishing to invest in higher risk start-up companies may also consider the following investment vehicles: 

Enterprise Investment Scheme (EIS)

It’s possible to invest up to £2million in EIS, provided anything over £1million is invested in ‘knowledge-intensive’ companies. These are companies that carried out research, development or innovation at the time they issued, or are issuing shares. You receive an Income Tax deduction of up to 30% of the EIS investment and the subsequent disposal of your EIS shares is potentially exempt from CGT, subject to various conditions being met. You also have the option to defer capital gains on assets disposed of three years before or up to one year after your EIS investment, equal to the amount invested.  

Seed Enterprise Investment Scheme (SEIS)

You can invest up to £200,000 in the year and receive an Income Tax reduction of 50% of the investment, potentially wiping £100,000 off your Income Tax bill, and the subsequent disposal of your SEIS shares is potentially exempt from CGT, subject to various conditions being met. Furthermore, you can claim to exempt 50% of a capital gain from CGT in the year if you reinvest the amount of the gain in a SEIS investment (i.e. a gain of up to £100,000). Provided the various individual and company conditions are met within the three years following an investment, the gain remains exempt from CGT.

Venture Capital Trust (VCT) 

A VCT might be suitable for you if you are prepared to invest in higher risk funds. You can invest up to £200,000 in a year and receive an Income Tax reduction of 30% of the investment. The subsequent disposal of your VCT units is potentially exempt from CGT, subject to various conditions being met. However, unlike EIS or SEIS, there is no scope to carry back the subscription to the previous tax year but, on the other hand, VCT dividends are exempt from Income Tax.  

What should you do?

Consider maximising your ISA allowance for the year if you have not already done so. 

If you are interested in making investments in EIS, SEIS and VCTs, consider whether one prior to 5 April 2025 would be appropriate. It’s also possible to carry back any EIS/SEIS subscriptions made in the current tax year to 2023/24, providing the EIS/SEIS limit has not been exceeded in that year. As the 2023/24 Self-Assessment filing and payment deadline has now passed, this should generate a tax repayment. 

If you’re in a position to consider deferring capital gains on assets disposed of, you may wish to consider whether a deferral would be appropriate now. When a deferred gain recrystallises, it is subject to the rate of CGT at that time and so there is a risk that a higher CGT rate could apply in a future tax year. 

Start-up companies are notoriously high-risk investments and so there are more than just the tax implications to consider.  

Abolition of the Furnished Holiday Lettings (FHL) regime: 

The FHL regime will be abolished with effect from 6 April 2025 and properties currently treated as FHLs will instead be treated as a UK rental business or overseas rental business. This means that the following tax benefits of FHLs will be withdrawn from that date. 

Interest on loans to fund an FHL business will no longer be fully deductible as an expense but will only be given at the basic rate of tax (20%). Capital allowances on fixed plant and machinery will be withdrawn, and relief restricted to the replacement of domestic items, as for ordinary lettings. Rental profits will no longer count towards ‘net relevant earnings’ for the purpose of relief for pension contributions. Former FHL properties will no longer be eligible for certain Capital Gains Tax reliefs, i.e. Business Asset Disposal Relief, gift relief and rollover relief.  

Moreover, former FHL properties owned jointly by married couples or civil partners but with unequal entitlement to income will automatically fall into the 50:50 allocation rule applicable to ordinary lettings.  

What should you do? 

The year 2024/25 will be the last chance to claim capital allowances on historic refits and refurbishments, so you will need to review your expenditure for any eligible works you might have so far overlooked.  If you are subject to the higher rates of income tax, you should revisit your financing arrangements as the restriction of interest relief will increase the real costs of borrowing.  If you are married or in a civil partnership and wish to maintain an unequal apportionment of income, you must file a Form 17 by 5 June 2025 to override the default 50:50 rule.  

Finally, note that rental losses can only be carried forward against profits of the same business. UK rental and overseas rental are separate ‘businesses’ for tax purposes. Any brought forward FHL losses will be automatically offset against profits on another rental property from 6 April 2025, provided that both are either UK or overseas  

Pension contributions for 2025/26 may need to be revisited and adjusted, as FHL profits no longer constitute relevant earnings.   

Where available, you are entitled to a tax-free annual exemption of £3,000 for 2024/25 in respect of capital gains realised in the year. The annual exemption has been reduced from £6,000 in 2023/24, but there is currently no indication that it will be reduced further. 

Gains in excess of the annual exemption (and not relieved by same year or brought forward losses) on disposals after 30 October 2024 are now charged to tax at 18% for any remaining basic-rate income band entitlement, with 24% charged on any remaining gains.  The 18% and 24% rates that applied to residential property have not changed, so special rates no longer apply for these disposals. 

There are also several important CGT reliefs to consider, such as: 

1. Business Asset Disposal Relief (BADR). This was previously known as Entrepreneurs’ Relief and in 2025/26 will apply a CGT rate of 14% (up from the current rate of 10%) to qualifying gains realised on sales of trading businesses and shares in a trading company. This relief is subject to a lifetime limit of £1million of qualifying gains (i.e. a maximum saving of £100,000). The rate will rise to 18% for disposals made on or after 6 April 2026 (reducing the maximum saving to £60,000).  
2. Principal Private Residence (PPR) relief is also available on any gain on the sale of your main residence, which exempts the gain for the period that the property is your main residence (as well as certain other periods). In many cases, it is straightforward to determine which property is your main residence, although it is possible to nominate a property if you have more than one residence at a given time. 

The rate rises in the Autumn Budget were not as sharp as had been anticipated, but a further uplift cannot be ruled out.

It is worth noting that many UK residential property disposals must now be reported to HMRC within 60 days of the completion of the sale. Certain exemptions from this accelerated filing requirement apply but advice should be sought as HMRC can impose late filing and payment penalties and interest.   

What should you do?

If possible, consider whether enough gains can be crystallised each year to utilise the annual exemption available. Also consider whether capital losses can be generated before 6 April 2025 if large gains have already been realised, or whether you have any brought forward losses from previous years available. This may include negligible value claims against worthless assets, where these have not already been realised. It could also involve transfers between spouses before sale, to ensure that any losses are set against other gains. However, this may not always be appropriate, such as if you anticipate large gains in future years. 

Likewise, if you are planning on making disposals that will crystallise large gains and the circumstances make this possible or advisable, it may be worth making them in this tax year rather than waiting for future tax years where the CGT rates may be higher. 

If you have not done so already, you may also wish to review your BADR position, particularly in the light of reductions in the lifetime limit, the most recent being in 2020. These rules have cumulatively changed in recent years and further changes cannot be ruled out.  

Finally, if you have more than one home, consider your PRR position and whether an election is needed. The availability of PPR relief can also be complicated, where the garden or grounds of a property exceed 0.5 hectares (c.1.2 acres), and this is an increasing area of HMRC enquiry on relevant disposals.  

There are a number of reliefs and exemptions for IHT to consider each year, which could reduce the amount of IHT that your estate pays on your death. The main allowances are: 

• Annual exemptions: Up to £3,000 can be given away each tax year and, if unused in a year, that amount can be carried forward for one year and utilised in the next. 
• Small gifts exemption: You can give up to £250 to as many people as you wish each tax year (this cannot be combined with your annual exemption). 
• Gifts out of income: If your income regularly exceeds your expenditure, you can give away the excess if part of a settled pattern (e.g. regular savings for a child, paying university tuition fees or rent).  
• Gifts for weddings or civil partnerships: you can give up to £5,000 to a child, £2,500 to a grandchild/great grandchild and £1,000 to any other person.  

The Autumn Budget contained several structural changes to IHT, albeit these do not come into immediate effect.  The nil rate band of £325,000 and residence nil rate band of £175,000 will remain frozen until 2030.   

From 6 April 2025, the scope of the charge to IHT on property situated outside the UK will cease to depend on an individual’s domicile and depend instead on their Long Term Residence.  

From 6 April 2026, a £1 million combined allowance will be introduced for business and agricultural assets and qualifying property within this allowance will continue to attract 100% relief.  Above this threshold, the rate of relief will be reduced to 50%, i.e. an effective IHT rate of 20% on the value of the business/farm that exceeds the £1m threshold. AIM-listed shares, which are also currently 100% exempt from IHT once owned for more than two years, will also only attract 50% relief from IHT.  

Unused pensions and death benefits will be subject to IHT from 6 April 2027. As a result of their current tax-free status, these were often the funds that individuals crystallise last but this approach will need reconsidering in due course.  

The inclusion of businesses, farms, and pension funds within the charge to IHT will also have an impact for any tapering of the Residence Nil Rate Band, which applies for estates valued above £2m.   

What should you do?

Consider whether you have utilised all the potential IHT reliefs and exemptions, particularly the exemptions which are available on an annual basis, subject to the one year carry forward provision.  

You may also wish to consider whether it is appropriate to obtain a wider review of your estate and Inheritance Tax position, as there may be further opportunities to reduce your IHT exposure or more generally to optimise the administration of your estate. For instance, our clients often have assets (e.g. the family home or collectables such as art, cars, etc) which they would like to remain within their family after their death, as opposed to being sold. In such cases, ensuring that the estate will be administered efficiently from a tax and cashflow perspective is vital to the future retention of these assets by the beneficiaries. Planning in advance of the 6 April 2026 rules will be crucial to ensure the succession of a family business or farm is not disrupted by IHT liabilities.