6 allowances you may want to make the most of before the end of the tax year

Category: News & United Kingdom

The end of the 2024/25 UK tax year is 5 April 2025.

After that date, various advantageous annual tax allowances and exemptions reset, so it’s very much a case of “use them or lose them” before they do.

Given the amount of Income Tax you probably pay to HMRC each year, it make senses to offset this as far as possible by utilising the available allowances that reduce the amount of tax you pay, before dials are set back to zero.

So, find out about six particular allowances that you may want to make use of before they reset at midnight on 5 April.

1. Your pension Annual Allowance

You can contribute up to the lower of £60,000 or 100% of your earnings into a pension in the 2024/25 tax year while still benefiting from tax relief at your marginal rate of tax.

This is known as your Annual Allowance.

You can also give your pension fund a real boost by “carrying forward” any unused allowance from up to three previous tax years. This means that your Annual Allowance from 2021/22 will no longer be usable after 5 April 2025.

Basic-rate tax relief is usually added automatically to your contributions, and you can then claim higher rates of relief through your self-assessment tax return if you’re eligible.

However, if you’ve already started drawing flexibly from your accrued pension fund, tax relief is likely to be restricted by the Money Purchase Annual Allowance (MPAA). In effect, this reduces your Annual Allowance to just £10,000.

You should also be aware that, even if your spouse or partner isn’t earning or paying Income Tax, they can still contribute up to £2,880 net in the current tax year into a pension, and benefit from basic-rate tax relief.

2. Your Capital Gains Tax Annual Exempt Amount

In the current 2024/25 tax year, you have a Capital Gains Tax (CGT) Annual Exempt Amount of £3,000.

Any profits you take from non-ISA investments and the sale of other assets in excess of that amount are subject to CGT.

This exemption cannot be carried forward to future years, so it’s worth you trying to make the most of it in the current tax year to help reduce your tax bill.

It may also be worth making use of your partner or spouse’s exemption by transferring assets between you to maximise your respective CGT-free gains.

3. Your Dividend Allowance

Your Dividend Allowance allows you to receive tax-free dividends from investments you hold or a business you own without incurring a tax charge. In 2024/25, this is up to £500.

This is only a relatively small amount, but is still worth making the most of if you are able.

As with many other allowances, if you don’t use your Dividend Allowance before the end of the tax year, you will lose it.

4. Your annual ISA allowance

ISAs are a popular and highly tax-efficient way to save and invest money. According to the government website, there were around 12.4 million active ISAs in 2022/23, with around £71.6 billion saved and invested in them.

In the 2024/25 tax year, you have an ISA allowance of £20,000. This allowance applies to all individuals over the age of 18, meaning you and your spouse or partner can contribute up to £40,000 between you in the current tax year.

You can contribute to a Cash or Stocks and Shares ISA, or divide your allowance between the two options.

The tax efficiency derives from the fact that you don’t pay Income Tax or CGT on your ISA returns. Because of this, they are a highly effective way to boost your finances.

5. The Junior ISA allowance for your children

Similar to their adult counterparts, Junior ISAs (JISAs) offer a tax-efficient way to save or invest for your children.

During the 2024/25 tax year, you can deposit up to £9,000 into a JISA for each child. If you don’t use the allowance before the end of the tax year, you will lose it.

Like traditional ISAs, you can choose a Cash JISA or a Stocks and Shares JISA, with the interest and returns being free from Income Tax and CGT.

By making regular JISA contributions, you can build a considerable sum for each child that will give them a handy sum of money as they make their own way in the world.

However, you should bear in mind that the ISA provider will automatically pass control of the funds in the ISA to your child when they reach age 18.

6. Make gifts to reduce your Inheritance Tax liability

You can help reduce the amount of Inheritance Tax (IHT) chargeable on the value of your estate when you pass away by making gifts.

You have an annual gift exemption of £3,000 (2024/25), which can be gifted to an individual or across a number of people.

You can also carry forward any unused gift exemption for one year. This means that the £3,000 exemption from the 2023/2024 tax year will drop out after the end of this tax year.

Each individual has a gift exemption of £3,000. This means that you and your spouse or civil partner could potentially gift £12,000 before the end of the current tax year and reduce your IHT liability on the value of your estate by this much if you both used your full exemptions from this tax year and the previous one.

You could then make further gifts of £6,000 at the start of the next tax year on 6 April.

Expert advice can help you make the most of your allowances

We would strongly recommend that you speak to a financial expert when it comes to your tax planning arrangements.

The details can sometimes be complicated, and so it’s sensible to have someone working with you who understands your specific requirements. That way, they can ensure you are making the most of all available allowances and exemptions to mitigate the effect of taxation on your finances.

Get in touch

If you would like to talk about your tax planning as we approach the end of this financial year, please get in touch with us.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is for information only, it does not take into account your personal objectives, financial situation, or needs. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate estate planning.

All contents are based on our understanding of HMRC legislation, which is subject to change.