'Tax Year End' and “you must be busy” go hand in hand in financial services. Every year the run up to  5 April can be hectic with new enquiries for time sensitive needs.   

So, what is tax year end and why is it a busy period for financial planning?   

In the UK, the tax year runs from 6 April to 5 April the following year and if you want to ensure your finances are planned effectively for the current year, any planning needs to be completed in this window.  So, when you hear the phrase ‘tax year end’, it means we are approaching the 5 April deadline and the window for ensuring all  availableall available tax allowances are utilised effectively is nearing a conclusion.  

So if you have been meaning to use that ISA allowance or make a pension contribution you are on the clock for this tax year and it is ticking.    

The key allowances you may want to use include: 

Annual Allowance and Pension Contributions 

Each tax year you have an annual allowance, currently this is up to £60,000 dependent upon circumstances that can be paid into a pension.  Pensions offer tax free growth – no Capital Gains Tax or Income Tax on the capital growth and no dividend tax on any dividend payments within the pension.   

Contributions can be made on a personal basis attracting Income Tax relief at your highest marginal rate.  This is especially useful for higher earners such as those who lose their personal allowance. 

Pension contributions can be paid by an employer and for those people running their own limited company. The contributions can normally be offset as an expense against Corporation Tax. 

Who should be considering pension contributions before tax year end? 

• Higher earners who would like to pay less tax and have available capital. 
• Business owners who have a profitable business and capital to spare that can be used for pension contributions.  
• Those approaching retirement who want to make the most of their savings whilst still earning. 

Making pension contributions can be complicated and taking advice from a financial planner or accountant can ensure you do things correctly for your circumstances.  

Individual Savings Accounts (ISAs) 

Each tax year you can save up to £20,000 into an ISA or split it across the 4 different types of ISA available: cash ISA; stocks and shares ISA; innovative finance ISA; and Lifetime ISA.  

Saving through an ISA you do not pay tax on: 

Interest on cash in an ISA; or Income or capital gains from investments in an ISA.  

For children, there are Junior ISAs (JISA) which allows contributions of up to £9,000 per tax year. You can have either a cash JISA or a stocks and shares JISA.   

Who should be considering their ISA Allowances before tax year end? 

• Anyone with savings where they are currently exposed to paying tax on the interest or gains. 
• Are you saving for a house or have children/Grandchildren that are? Consider helping them top up Lifetime ISAs.  
• Care should be taken not to exceed allowances.  

As well as the allowances you have at your disposal for tax efficient saving, it’s also important to understand the tax allowances you have available when taking an income or selling an asset.   

Income Tax Personal Allowance 

Most have a personal allowance of £12,570, which is the amount of income you can earn before you start paying Income Tax. For those in retirement with no other sources of taxable income, you may wish to consider drawing from a pension to use the available personal allowance.   

For example, a £16,000 withdrawal from a pension could be tax free should the 25% tax free lump sum allowance have not been used. This would give you £4,000 of tax-free cash and  £12,000 of taxable income. This would be covered by the personal allowance and be free from taxation.    

For some it could make sense to go further and take income up to the basic rate thresholds.   

Who should be considering withdrawing income from pensions before tax year end? 

• Those who are retired, unlikely to make future pension contributions and are in need of income or lump sums from pensions to fund retirement.  

We would strongly recommend you consult with a financial planner before taking funds from a pension to ensure you are doing the right thing for your circumstances.   

Dividend Tax Allowance 

The dividend allowance is the total amount of dividends you can receive in a year before you need to start paying tax on them.  If you are running your own company, check with your accountant if there is scope to take a dividend, the first £500 will be tax free.   

Who should be considering Dividends before tax year end? 

• Private Limited company shareholders and business owners.

Capital Gains Tax (CGT) Allowance 

CGT is a tax on the profit when you sell (or ‘dispose’ of) something (an ‘asset’) that’s increased in value.  It’s the gain that is taxed, not the amount of money you receive.   

For the current tax year, the tax-free capital gains allowance is £3,000.  However, this year we saw a change mid tax year to the rates of tax.   

For gains within the basic income tax band, you’ll pay 18% on your gains from 30th October 2024.   

For any amount above the income tax band, you’ll pay 24% on gains from 30th October 2024.   

Who should be considering using their Capital Gains Allowance before tax year end? 

• Those with assets in an investment account which is not an ISA and or hold shares directly that you plan of disposing of in future, may want to consider utilising the CGT allowance before the tax year end as you cannot carry forward unused allowances. 

Most commonly we use proceeds from an Investment account to top up ISAs and Pensions but income can also be taken from these accounts and taxation could be less harsh than Income Tax. Careful planning should be taken to make sure this is right for you. 

What other Investment opportunities are tied to tax year end?  

There are various incentives for investing into smaller UK businesses. This is commonly done via Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS).  Both have various incentives for investment with the largest normally being Income Tax Relief of up to 30% of the amount invested.  

These investments tend to be attractive to higher earners with spare capital and a long-time horizon as well as those who have one off income spikes in the current tax year. This can happen for example when someone sells a business or sells assets. These investments are deemed higher risk due to various reasons such as their liquidity and being privately owned rather than publicly listed companies.   

That said, EIS and VCTs can be a very effective investment vehicle for the right people in the right circumstances.  

As you can see, in the run up to the end of the tax year there are many options, it differs for each person and advice should be sought to ensure the best outcome maximising your finances before time for this tax year runs out.  

 Please get in touch or speak to your financial planner if you want to discuss any of this in more detail.  

Disclaimer 

Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority. 

Please note: This communication should not be read as financial advice. While all possible care is taken in the completion of this  article, no responsibility for loss occasioned by any person acting or refraining from action as a result of the information contained herein can be accepted by this firm.  

This article is based on our understanding of tax legislation as at 06/02/2025. The benefit of any reliefs or allowances will depend upon your own situation.