Now is the time to work towards maximising your end-of-year tax planning before the new tax year starts on April 6. If you haven’t used all your allowances and reliefs for this tax year, then in the coming month, you should make the time to address this.
By using up as many of your tax reliefs and allowances as possible before the end of the tax year, you can be sure you are not paying any more tax than necessary to HMRC. So, you need to think about adding to your savings, pensions and investments in the next few weeks to benefit from the tax relief.
However, you need to make any changes you need before April 5, as the new tax year begins on April 6 in the UK.
Maximising pension contributions
One of the biggest benefits is the tax relief you can receive on pension contributions. Basic rate taxpayers will receive tax relief at 20% on up to £60,000 a year of contributions, but remember, you cannot receive more in tax relief than you pay in tax in a single year.
To make a £100 contribution to your pension, you would need to pay £80 into the pot, and the Government would add £20 in tax relief. But the good news is that the amount of tax relief you receive is paid at your marginal rate. So, if you are a 40% taxpayer, then you would need to put £60 into your pension and the Government would put in £40 to make it up to £100. Additional rate taxpayers, who are paying 45% tax, will pay £55 into their pension with tax relief of £45 from the Government to make up £100.
Anyone earning above £100,000 will see their personal allowance of £12,570 removed at the rate of £1 for every £2 earned above this level. It means that by the time you have earned £125,140, your personal allowance will have reduced to zero. Thanks to a quirk of the system, this means that someone in this position will have an effective contribution of 60% from the Government, as all contributions are paid from gross salary. This can reduce the income level for the calculation of the reduction in the personal allowance.
You should mop up as much of the tax relief as you can before April 5 for the current tax year. But if you didn’t maximise your contributions in the last three years, you can also use something called ‘carry forward’ which allows you to use up any additional tax relief that remains unused in these previous years.
Optimising savings and investments
Each person in the UK can put up to £20,000 a year into an Individual Savings Account (ISA), which is a tax-efficient savings vehicle. Unlike pensions, you don’t get tax relief on the payments you put into an ISA, but you do get tax-free income from an ISA at the other end, whether through generating investment income, or withdrawals of the capital.
If you are between 18 and 40, you can also set up a Lifetime ISA to save for your retirement or your first home. You can put up to £4,000 a year into this type of ISA until you’re 50, but your first payment made into this type of ISA must be made before you are 40 to qualify, and then the Government will add 25% up to a maximum of £1,000. A Lifetime ISA makes up part of your £20,000 allowance for the 2024/25 tax year, so make sure if you invest in another ISA that you don’t breach this overall limit.
Although Capital Gains Tax (CGT) doesn’t apply to ISAs, if you have investments outside of this, then it might be worth considering taking some profit from them to maximise your CGT allowance for this tax year. For the 2024/25 tax year, you can crystallise gains of £3,000 and pay no tax thanks to the CGT annual exemption. You can use this amount before April 5 if you haven’t done this already this tax year.
Tax relief on work expenses not reimbursed by your employer
Many people don’t realise they can benefit from tax relief on work-related expenses, even if they pay PAYE. If you pay some work-related expenses, for example for membership to professional bodies, professional publication subscriptions, travel in your own vehicle for work – but crucially not to or from where your office is – or if your contract designates that you work from home, then you can reclaim these from HMRC. But this is only possible if your employer doesn’t reimburse you for them.
If you file a self-assessment tax return, then this relief is claimed on the ‘employment’ pages. If you don’t already file a self-assessment for another reason, then you can use form P87 if you are claiming less than £2,500 per year, which will need to be posted to HMRC. If it is more than this, then you will need to file a self-assessment return.
You can claim expenses as far back as four tax years, so if you haven’t been using this tax break, then make the most of it now. Remember though, you will need to provide evidence for the expenses being claimed, so make sure you keep any receipts or bank statements to prove your case.
You can currently go back much further than normal to plug any gaps in your National Insurance Contributions (NICs) record. Voluntary Class 3 NICs can usually only be paid for the last six tax years if you have missed any payments for any reason, such as illness or redundancy.
However, you can currently go back as far as 2006 to fill in any gaps in your NICs record, but this will end on April 5. You need 35 ‘qualifying years’ when you retire to get a full State pension, and if you don’t have enough qualifying years, your pension will be lower.
If you have missed contributions due to childcare responsibilities, then you should have received National Insurance Credits after 2010, or Home Responsibilities Protection between 1978 and 2010. You could get a maximum of 22 qualifying years under HRP – which was automatically converted to NI Credits in 2010. But some records were not correctly applied, so if you think you or a family member may not be benefiting from a full HRP or NI Credits record, then you can apply online to make sure that all HRP years you should have received have been applied.
You should have had HRP applied if you were claiming Child Benefit for a child under 16, but it would also apply if you were caring for someone who was receiving other benefits. You can find out more about the eligibility criteria on Gov.uk
Contact us
If you want to find out how to maximise your tax planning before the end of the tax year, and to ensure you have every qualifying year possible for your State pension, then please get in touch with us and we will do whatever we can to help.
