The End of the Tax Year

Tax Free Allowances

With the end of the tax year approaching, now is a good time to be considering your finances – particularly to make sure you don’t miss out on any tax free allowances.

For ISAs, savers can invest up to £20,000 each tax year.  It’s also possible to pay money into Junior ISAs for children and grandchildren who have their own allowances (£9,000).

For pensions, your annual allowance limits the amount that you can pay in each year (and still receive tax relief).  If you want to make full use of this allowance, you need to do it within the tax year.

Most people have a Capital Gains Tax (CGT) allowance and you’ll only pay CGT if your overall realised gains for the tax year are above this figure, after deducting any losses and applying any reliefs.

It’s worth noting that CGT allowances have decreased markedly in recent years, down to only £3,000 for the current tax year.  Likewise, the Dividend Tax Allowance (the amount you can receive in dividends before you start paying tax on them) has also decreased, down to only £500 this current tax year.  As a result, many more individuals and trusts could be liable for these taxes. We provide ongoing advice to clients in this area, though reporting to HMRC is something that individuals are responsible for doing themselves.

Please get in touch if you have any questions about using your allowances for this year. We need to receive any instructions from you as soon as possible, otherwise there may not be time for transactions to be completed before the tax year ends.

Note that ISAs are exempt from CGT and Dividend Tax, and they’re also exempt from any tax on interest earned.

National Insurance – Voluntary Contribution Changes

How much State Pension you’re entitled to in retirement depends on your history of National Insurance (NI) payments. In general, for the maximum ‘new state pension’ you’ll need 35 qualifying years of NI contributions.  People who don’t contribute enough before reaching state pension age may not be able to claim a full state pension.

There are some situations in life where you might not have been making full NI contributions – and you can make voluntary contributions to fill in gaps in your NI payments.

Currently, men born on or after 6th April 1951 and women born on or after 6th April 1953 can make voluntary contributions for tax years back to 2006.  However, after the end of tax year 2024-25, you will only be able to do this back for the previous six tax years.  You can find more information online here.

If you’re not certain about your history of NI payments, it’s worth checking – which you can do online by logging-in through the Government Gateway here. We cannot check this for clients but – if you do find there are gaps in your records – we can advise whether it’ll be worth making voluntary contributions to ‘top up’ any missing years.  It’s a complicated area so please get in touch if you have any questions, bearing in mind the upcoming deadline.

Estate Planning

It’s important to remember that you also have the annual exemption allowance of £3,000. This allows you to gift up to £3,000 (total) in each tax year to family or friends without the usual 7 year clock applying. In addition, you can give as many gifts of up to £250 per person as you want each tax year (Small Gifts exemption), as long as you have not used another allowance on the same person.

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They can include:

• paying rent for your child
• paying into a savings account for a child under 18
• giving financial support to an elderly relative

If you’re giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance. We refer to this as the ‘gifts out of excess income exemption’.

As with all of the above exemptions, we recommend keeping very clear records of your gifting so that your executors can ensure your estate pays the correct amount of tax upon your death. We can help with providing suitable wordings upon request.

If you have any questions about the end of the tax year, or are looking for help with your financial planning, please get in touch.