The tax year end is fast approaching - it’s time to review your financial position and ensure you make the most of the tax planning opportunities that are available before 5 April.
Tax thresholds have been frozen since 2022/23 , which has resulted in more individuals drifting into higher tax bands without a meaningful increase in real income. This can also result in losing valuable allowances simply due to inflation.
Here are some key issues to be considered.
Personal Allowance starts to reduce once income (referred to as Adjusted Net Income) exceeds £100,000 and is completely lost when income reaches £125,140. For income in between this range, the effective tax rate is an eye-watering 60% on income above £100,000.
Similarly, Child Benefit is clawed back gradually where income exceeds £60,000 and is clawed back entirely where income exceeds £80,000.
In both these scenarios, consider making pension contributions as these reduce your Adjusted Net Income for these purposes and can therefore can be used to reduce your income to below £60,000/£100,000.
Basic rate taxpayers have a £1,000 savings allowance. This is reduced to £500 for higher rate taxpayers and is lost entirely for additional rate taxpayers.
Where these limits are in danger of being breached, consider using tax-free ISAs. The annual limit for investment in an ISA is £20,000 – ISA allowances do not carry forward so any unused allowance is lost after 5 April.
The tax-free dividend allowance is now only £500 but should be used wherever possible.
With the changes to IHT reliefs that are effective from 6 April 2026, business owners should consider whether gifting of shares is appropriate to maximise the reliefs available.
Each individual has an annual exemption of £3,000 which is lost if it is not used within the tax year.
Disposing of assets in a planned way before 5 April can allow gains to be realised within the exemption, or losses to be crystallised and offset against other gains where appropriate.
If salary sacrifice arrangements for pension payments are available through your employer consider using these to reduce Adjusted Net Income.
Currently, salary sacrifice can also result in national insurance savings.
Ultimately, tax year-end planning is about ensuring that available reliefs and exemptions are not lost through inaction. Reviewing your position now can provide an opportunity to mitigate unnecessary tax charges and place you in a stronger position for the year ahead. If you want to understand how ETC Tax can assist you with year end planning please do get in touch.
