Taxpayers have until 5 April 2025 to manage their finances and make sure they are maximising their investments, pensions and savings returns.
With the self-assessment deadline for taxpayers to declare their 2023/24 earnings ending on 31 January, this is a traditionally busy time of year for self-employed workers.
However, with one in three Brits earning more than £1,000 from side hustles, millions more taxpayers are expected to have more admin to take on than before.
Over half (53%) of UK adults are stressed about their current personal finances, while one in two are worried when they think about investing for their future, according to Interactive Investor research.
To help savers and investors feel better about their finances, Myron Jobson, senior personal finance analyst at Interactive Investor, has provided nine things to consider before the tax year ends.
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1. Get the most of your ISA allowance
The annual ISA allowance resets on 6 April 2025, and it’s a ‘use it or lose it’ allowance. This means that, until 5 April, you can deposit up to £20,000 into an ISA tax-free.
Holding money in an ISA protects your savings and investments from income tax, dividend tax, and capital gains tax (CGT). If you have an unused ISA allowance and plan to deposit more money into your ISA, make sure you do so before the allowance resets.
2. Max out your pension contributions
Every year, you can invest 100% of your earnings, up to a maximum of £60,000, into your pension and get tax relief on your contributions. This relief comes in the form of Government top-ups, which are a 20% boost for basic-rate taxpayers. Higher-rate taxpayers can claim extra relief via a self-assessment.
If you’re a higher-rate taxpayer now but expect to be a basic-rate taxpayer in retirement, pension contributions make even more sense – you get higher tax relief going in and pay less tax when you withdraw.
Unlike ISAs, which have a hard and fast rule on the annual allowance, if you haven’t used your full pension allowance from the past three years, you can carry it forward and make larger contributions this tax year. So, if you have maxed out your ISA allowance and wish to save more money elsewhere, then consider using your pension to do so.
3. Use your capital gains allowance
If you’re sitting on profits from shares, property, or other investments, consider securing your gains now to use up the current £3,000 allowance.
Bed and ISA strategies – selling assets and rebuying them within an ISA – can also help keep future gains tax-free.
What’s more, if you have a spouse, it’s worth remembering that spreading assets before selling can double your tax-free allowance. Also, transfers between spouses are tax-free.
4. Make the most of your spouse’s allowances
You can transfer assets to make use of both ISA allowances. As those in couples get a £20,000 ISA allowance each, you can shelter up to £40,000 tax-free as a household each year. So, if one partner has more savings and/or investments, consider gifting assets to your spouse so they can invest in their ISA.
Secondly, both pension allowances should be used. If one partner is a higher-rate taxpayer, they can contribute to the lower-earning partner’s pension – helping to balance retirement savings and maximise tax relief.
Lastly, you can take advantage of the marriage allowance. If one spouse earns less than £12,570 per year – their personal allowance – they can transfer £1,260 of it to the higher-earning spouse, saving up to £252 in tax per year.
5. Check your state pension contributions
The state pension rules are changing, and from April 2025, you won’t be able to top up missing National Insurance years going back as far as 2006. Instead, you’ll only be able to go back as far as six years.
If you’ve got gaps in your record, now’s the time to buy back years.
6. Get dividend savvy
If you invest outside of a SIPP or ISA – for example, in a Trading Account – your personal dividend allowance is £500, which can be paid to you tax-free.
Before making any new investments in your Trading Account, consider making them in your ISA, where you have an uncapped ISA dividend benefit.
7. Claim tax relief on charitable donations
Ticking that Gift Aid box adds 25% to your donation, and higher-rate taxpayers can claim back additional tax relief.
If you’re on the cusp of a higher tax band, Gift Aid donations can help bring you back down and ensure you avoid paying tax at a higher rate.
8. Avoid losing child benefit or the personal allowance
Child Benefit starts getting taxed away from earning £60,000, due to the High Income Child Benefit Charge (HICBC). What’s more, if you earn over £100,000, your personal tax-free allowance (£12,570) is reduced.
One solution to maintain your full Child Benefit is to make pension contributions. This reduces your taxable income, helping you stay below the thresholds and maintaining more of your benefits.
9. Don’t forget Junior ISAs
Children get an ISA allowance too, and they can save up to £9,000 in a Junior ISA (JISA) tax-free.
Paying into a JISA is a great way to build a nest egg for the youngest members of your family, but it can also be a way for particularly tax-savvy parents and grandparents that have already maxed out their ISA allowance to stow away extra funds.
