Five key actions to take before the 2024/25 new tax year

With January behind us and the next self-assessment tax deadline almost a year away, it’s tempting to put aside all thoughts of tax for a while.

However, the period between 1st February and 5th April is the perfect time to get your personal tax affairs in order. Below are five actions you should be thinking about now if you want to be prepared for the next tax year – and potentially reduce your bill…

1. Make use of your tax-free allowances.

Prior to 5th April, it’s important to check you’ve made use of all allowances and reliefs available to you. That’s especially important this year, given the upcoming reduction to some allowances and exemptions. The annual Capital Gains Tax exemption will be reduced from £6,000 to £3,000 from 6 April 2024, and the dividend allowance will be halved from £1,000 to £500.

If you are considering selling an asset, it may be worth bringing the disposal date forward to this month or next month to utilise the higher CGT allowance. This could save a higher rate taxpayer up to £840 in CGT. Alternatively, a disposal of shares could potentially be split into more than one transaction to straddle two tax years, utilising two years’ annual exemptions. Remember that no CGT charge arises on spousal transfers, so assets can be transferred before sale, effectively doubling the annual allowance for married couples and civil partners.

2. Avoid high marginal tax rates.

If you earn between £100,000 and £125,140, your personal allowance is tapered, with those earning above this amount losing their personal allowance entirely. This can mean a marginal tax rate of 60% on part of your income, which can be avoided with some relatively simple tax planning.

The easiest way to retain your personal allowance if you fall within this tax bracket is to pay more into your pension. This reduces the earnings that fall within this bracket, thereby reducing tax, as well as boosting your pension pot. Just watch out for annual allowance tax charges, as there are maximum amounts that can be contributed to your pension each year without incurring a charge.

3. Investigate tax efficient investments.

Make sure to use your ISA allowance before the tax year end, as these allowances are lost if they’re not used. Junior ISAs can also be used to save for your children’s future. You may want to consider more specialist investments such as Enterprise Investment Schemes, which have become more popular in recent years and come with a variety of tax advantages.

We would always recommend taking financial advice from an independent financial advisor if you are considering making any new tax efficient investments. They can explain the risks involved and offer practical advice.

4. Check your tax code.

If you earn income via “Pay As You Earn”, HMRC will issue you a tax code each year for each employment/pension. Your employer must operate the tax code issued, so it’s important that you check these codes are correct so that you pay the correct amount of tax and don’t end up with unwanted tax demands arriving in the post at the end of the tax year.

Tax codes are most likely to be incorrect if you’ve changed jobs in the year, or if there’s been a change in the level of your taxable income, so look at the entries and make sure they’re accurate. All tax codes can be viewed by logging in to your personal tax account, which can be set up at this HMRC personal tax account webpage.

5. Consider your self-assessment requirements.

With some tax allowances reduced and income tax thresholds frozen, a record number of UK taxpayers are now paying higher rates of tax. It’s worth checking the criteria each year to check if you should be submitting a tax return, as HMRC can charge a failure to notify penalty if you don’t inform them about any new sources of taxable income.

From the 2024/25 tax year, there will be no requirement for those with PAYE income only to submit a tax return. However, you may still have tax to pay if you have untaxed savings income or are caught by the high-income child benefit charge. The latter’s £50,000 threshold hasn’t changed since the charge was introduced eleven years ago, resulting in more taxpayers than ever having to complete a tax return to pay the resulting charges.

A combination of rising interest rates and routines pay increases could also mean a move in tax bands results in a corresponding drop in your savings allowance. (This is £1,000 for basic rate taxpayers, but only £500 for higher rate taxpayers. Additional rate taxpayers receive no allowance at all.)

If you would like to speak to our private client team about your tax requirements, please don’t hesitate to get in touch.