As the 2024/25 tax year draws to a close (5 April 2025), the next few weeks are the last chance for businesses and individuals to implement effective tax planning strategies. Furthermore, the Autumn Budget of October 2024 introduced several tax changes that will take effect from April 2025. By understanding these changes and current tax reliefs and allowances, you can take proactive measures to optimise your tax position and potentially reduce your tax liabilities.
The team at DWilkinson&Company have outlined below some practical tax planning measures you may want to consider.
For Individuals
Maximise pension contributions: Contributing to your pension remains a tax-efficient way to save for retirement. The government provides tax relief at your highest marginal rate, e.g. basic rate taxpayers (20%), higher rate taxpayers (40%) and additional taxpayers (45%). This is an effective way of reducing your taxable income.
For higher earners, i.e. those with an income of £100,000 or above, this strategy can also help preserve your personal allowances and, depending on your earnings, could create up to a 60% tax saving.
Utilise ISA allowances: The Individual Savings Account (ISA) allowance for the 2024/25 tax year is £20,000 per person. The Autumn Budget confirmed this level will remain for the 2025/26 tax year. However, there is uncertainty as to whether this limit will be cut in the future. Investing in ISAs now allows your savings to grow free from income tax and capital gains tax. Individuals would be wise to use their ISA allowances as much as possible in the current tax year.
Plan for Inheritance Tax (IHT): Significant changes to IHT were announced, including the inclusion of untouched pension pots as part of your estate from April 2027. Additionally, agricultural and business properties will no longer be fully exempt from IHT; the first £1 million will remain exempt, with tax charged on the excess at half the standard rate from April 2026. These changes could have serious consequences for family-owned businesses and farms. Individuals are advised to seek professional advice to discuss their situation and how best to try and mitigate future IHT bills.
Review Capital Gains Tax (CGT) liabilities: The Autumn Budget increased the CGT basic and higher rates from 10% to 18% and 20% to 24%, respectively; this became effective from 30 October 2024. If you have assets with significant unrealised gains, consider utilising your annual CGT exemption, currently £3,000, before the tax year ends.
For Businesses
Adjust for employer National Insurance Contributions (NICs): Starting from April 2025, the rate of employer NICs will increase by 1.2 percentage points to 15%, and the threshold at which employers start to pay National Insurance will be reduced from £9,100 per year to £5,000 per year. However, the Chancellor has also increased the Employment Allowance from £5,000 to £10,500 and has removed the £100,000 threshold, a welcome change for smaller employers. The NIC changes could be significant for many employers. To mitigate the impact, consider reviewing your employment structures, exploring salary sacrifice arrangements, or investing in employee benefits that are exempt from NICs.
Maximise capital allowances: The Annual Investment Allowance (AIA) allows businesses to claim 100% tax relief on qualifying assets, such as machinery and equipment, up to £1 million. Additionally, full expensing is available for limited companies who make new (not second-hand) plant and machinery purchases, with no upper limit on qualifying expenditure. Making qualifying investments before the tax year-end can reduce taxable profits.
Plan for changes in business rates and taxes: During the Autumn Budget, the Chancellor announced the government's intention to introduce lower business rates for the retail, hospitality, and leisure sectors from April 2026. Understanding these changes can aid in your financial forecasting and strategic planning, particularly if your business is involved in the retail, hospitality or leisure sectors.
Prepare for changes to Furnished Holiday Lets (FHL): The abolition of the FHL regime will also take effect in April 2025, and FHLs will be treated the same as UK or overseas private property businesses. The FHL changes could impact relevant taxpayers in several ways, including pension relief, property loans, capital allowances on domestic items and capital gains. Landlords should seek advice on how these changes are likely to affect them.
Conclusion
As the end of the 2024/25 tax year approaches, individual taxpayers and businesses should take advice from qualified professionals on how best to minimise their tax liabilities in this current tax year and in the future.
The above article outlines several areas for reducing your tax bill, but tax planning is not a 'one size fits all' exercise. At DWilkinson&Company, we can review your current situation and your future objectives to provide tailored tax planning advice. However, to try to reduce your 2024/25 tax bill, you must act now, as any tax planning activities must be actioned by the end of March this year.
If you would like us to review your 2024/25 tax situation, please get in touch. We can learn more about your business and personal circumstances and discuss your options. Please call 0113 320 0001 or email office@dwco.co.uk.