Tax-Efficient Savings: A Guide for Taxpayers to Get Year-End Ready

Ajay Naik, Independent Financial Adviser explores the key steps to optimise your finances and save money before the deadline.

The end of the tax year is fast approaching, ending on 5 April 2025. This is your opportunity to review your annual allowances and assess how best to make the most of them. With some significant changes to tax allowances in the 2024/25 tax year and further reductions expected in the future, planning ahead is key. Using your allowances now could maximise your wealth by leveraging tax-efficient strategies and minimising liabilities.

The end of the tax year is more than a deadline, it’s an opportunity to make your money go further. This is the time to use up allowances that reset in April, reduce your tax liabilities, and fine-tune your financial strategy. For higher rate taxpayers, this could mean significant savings with the right moves in place.

There have been many tax changes in the last 12 months but here are the ones you really need to be aware of.

• Dividend Allowance: This has been slashed to £500, making dividend tax planning even more critical.
• Capital Gains Tax (CGT) Exemption: Now reduced to £3,000, impacting investment decisions.
• Inheritance Tax (IHT) Adjustments: This provides a renewed opportunity to maximise exemptions and allowances.

Understanding these updates ensures you’re prepared to navigate them and take full advantage of what’s available.

There are many ways to ensure you are being as tax efficient as possible, from maximising pension contributions to managing capital gains tax. Below are the key actions to consider ahead of 5 April 2025.

Boost Your Retirement Savings

Tax relief on pensions offers one of the most generous savings opportunities. Higher rate taxpayers can claim up to 40% relief on contributions, whilst additional rate taxpayers can claim up to 45% relief. Make sure to use your £60,000 annual allowance and consider contributing to pensions for non-earning family members to secure their futures while staying tax-efficient.

Planning withdrawals is just as important—access up to 25% of your pension tax-free, and time it with other income to reduce overall liabilities.

Maximise Pension Contributions

If you’re earning above £100,000, making pension contributions is a powerful way to reduce taxable income. Not only could this help you retain your full £12,570 personal allowance, but it also delivers up to 45% tax relief.

We’d recommend you take action by contributing before 5 April and, if possible, carry forward unused allowances from the past three years to increase your savings potential.

Make the Most of Your ISAs

The £20,000 ISA allowance is a simple yet effective way to shield your savings and investments from tax. Consider using a mix of Cash ISAs for easy-access funds and Stocks & Shares ISAs for long-term growth. Don’t forget Junior ISAs for your children, which allow contributions of up to £9,000 annually. If you’re under 40, then consider opening a Lifetime ISA, into which you can save £4,000 per year and receive an immediate 25% bonus (This £4,000 forms part of your overall £20,000 ISA allowance).

Plan for Dividends

With the dividend allowance now just £500, it’s time to rethink your dividend income strategy. If you’re a higher rate taxpayer, dividends above this threshold are taxed at 33.75% (39.35% for additional rate taxpayers).

Consider spreading dividend income across family members or paying dividends before 5 April to take advantage of current rates. A little planning here could save you significantly.

Manage Capital Gains Wisely

The reduced CGT exemption means gains above £3,000 are taxable at 20% for higher and additional rate taxpayers, but gains realised from 30th October 2024, are charged at 24%.

Strategies like “Bed and ISA” (selling assets and repurchasing within an ISA) or transferring assets to your spouse to utilise their CGT allowance can help you stay efficient and minimise tax.

Protect Your Estate from Inheritance Tax

Higher rate taxpayers should also focus on inheritance tax efficiency. Use the £325,000 Nil-Rate Band and £175,000 Residence Nil-Rate Band to minimise IHT exposure. Lifetime gifts—like the £3,000 annual exemption and £250 small gifts—can also reduce your estate while helping loved ones.

For more complex estates, trusts and other specialist investments offer a strategic way to manage assets and shield them from unnecessary tax.

Frequently Asked Questions:

What is the personal allowance, and how can I use it efficiently?

The personal allowance for the current tax year is £12,570. To retain the full allowance:

• Consider pension contributions or charitable donations if your income exceeds £100,000, as these can reduce taxable income.

How can I make the most of my ISA allowance?

The annual ISA allowance of £20,000 allows you to shelter savings and investments from tax. You can:

• Use a Cash ISA for short-term, accessible savings.
• Invest in a Stocks & Shares ISA for long-term growth.
• Contribute up to £9,000 to Junior ISAs for children.

Contribute up to £4,000 into a Lifetime ISA if you opened one before the age of 40.

How do pension contributions reduce taxable income?

Pension contributions attract tax relief at your highest marginal rate (20%, 40%, or 45%). By contributing before 5 April, you can:

• Reduce your taxable income,
• Carry forward unused allowances from the past three years to maximise contributions.

Can charitable donations help with taxes?

Yes, charitable donations through Gift Aid allow you to claim additional relief if you’re a higher or additional rate taxpayer.

How do I minimise Capital Gains Tax (CGT)?

The annual CGT exemption is £3,000 for the current tax year. To reduce CGT:

• Use a Bed and ISA strategy (sell assets and repurchase them within an ISA).
• Transfer assets to a spouse or civil partner to utilise their CGT allowance.

How can I plan for dividends efficiently?

With the dividend allowance reduced to £500, dividends above this threshold are taxed at:

• 8.75% for basic rate taxpayers,
• 33.75% for higher rate taxpayers, and
• 39.35% for additional rate taxpayers.

Consider spreading dividend income across family members or adjusting your dividend strategy before 5 April.

How can i reduce my inheritance tax liability?

Use the £325,000 Nil-Rate Band and the £175,000 Residence Nil-Rate Band efficiently. You can also:

• Make lifetime gifts using the £3,000 annual exemption,
• Give £250 small gifts to multiple recipients.

What is the Marriage Allowance, and can I benefit?

If you or your spouse earn below the personal allowance, you can transfer up to 10% (£1,260) of your allowance to the higher-earning partner, potentially saving up to £252 in tax.

Should I consider tax-efficient investments?

Yes, options like:

• Enterprise Investment Schemes (EIS),
• Seed Enterprise Investment Schemes (SEIS), and
• Venture Capital Trusts (VCT)

Offer tax relief and can complement your broader investment strategy.  It’s vital you seek professional financial advice as these investments are highly complex.

What’s the deadline for submitting tax returns and payments?

The deadline for Self-Assessment tax returns is:

• 31 January (online submission for the previous tax year),
• 31 January for balancing payments and the first payment on account.

What records do I need to keep for tax purposes?

Keep detailed records of:

• Income (employment, rental, or investments),
• Expenses (business, professional, or charitable donations), and
• Investment transactions (for CGT calculations).

Act Now to Maximise Savings

The 5 April deadline is fast approaching, so don’t wait to take action. Whether it’s pension contributions, ISA investments, or estate planning, each step you take today can make a meaningful difference. By getting your finances tax-efficient now, you’ll set yourself up for a stronger, more secure financial future.

Take control, optimise your savings, and make every pound work harder for you.

For further information on tax year-end planning opportunities get in touch today.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.