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Vinku Shah takes independents through some tax-planning opportunities so they can make the most of them in the new tax year…

We are just over halfway through the 2024-25 tax year, and this may be a good opportunity to review your personal tax positions to ensure that you take advantage of the various tax planning opportunities available to reduce your tax. 

SAVINGS AND INVESTMENTS

A variety of Individual Savings Accounts (ISAs) are available and the income and capital growth within these is tax free.

·    ISA – an annual overall allowance of £20,000 is available to a UK resident who is over the age of 18. You can split your ISA allowance any way you wish across different ISAs subject to limits for certain ISAs.

·    Stocks and shares ISA – Allows you to invest in stocks and shares tax free for the long term but you can withdraw your money whenever you need to. 

·    Junior ISA – This allows for parents or grandparents to invest up to £9,000 per child on behalf of their children/grandchildren. This is also a means to transfer funds to the child while reducing your estate for inheritance tax purposes.

·    Help to buy ISA – Anyone over 16 can save up to £200 per month. When the money is used to purchase a first home, the government will add a 25 per cent tax free bonus capped at £3,000. 

·    Lifetime ISA (LISA) – anyone between the ages of 18 to 39 can open a LISA to save for their first home or retirement. You can contribute £4,000 per annum until the age of 50. The government will add £1 for every £4 you put in up to a maximum of £1,000 per annum. Contributions into a lifetime ISA also count towards your £20,000 ISA allowance.

There are various tax efficient investments that provide tax relief, such as:

·      Venture Capital Trust (VCT) – VCT investments of £200,000 per annum can be made and qualify for tax relief at 30 percent of the investment. Dividend income from these is tax free and there is no capital gains tax on sale but relief for capital losses against income is not available.

·      Enterprise Investment Scheme (EIS) - Investments in qualifying companies up to an annual maximum of £1 million (£2 million where investments over £1 million are invested in knowledge-intensive companies) attract income tax relief at 30 per cent of the investment. If the investment is held for more than three years than any capital gain generated is exempt.Relief from CGT is available where an amount up to the level of the capital gain is reinvested in a company qualifying for EIS. The original capital gain is deferred until the EIS shares are sold. At which point the capital gain comes back into charge and is taxed at the prevailing rate. If the EIS investment makes a loss, an individual will be able to offset the capital loss against income.

·      Seed Enterprise Investment Scheme (SEIS) – You can invest up to £200,000 (£100,000 up to 06 April 2023) annually in start-ups that qualify for SEIS and get relief at 50 per cent of the investment.  Any capital gains will be exempt if the SEIS shares are held for three years. SEIS shares also provide reinvestment relief where a gain arising in the tax year on a disposal of any asset is reinvested in shares in a company on which you claimed SEIS Income Tax relief. If the SEIS investment makes a loss, an individual will be able to offset the capital loss against income.

ALLOWANCES AND RELIEFS (2024/2025)

Employment expenses: If you are in employment, you can claim relief for certain expenditure incurred in connection with your employment for example professional subscriptions, business mileage if using your own vehicle, allowance for working from home.

Personal allowances: You are entitled to a personal allowance of £12,570 for 2024/2025. 

Marriage tax allowance: If you are married or in a civil partnership, a basic rate taxpayer and your spouse’s level of income is below the personal allowance, they can transfer up to £1,260 of their personal allowance to you resulting in a tax saving of up to £252. Their income should be £11,310 or below to be able to get the full £1,260 of basic rate allowance.

Charitable giving: If you have made any donations to UK registered charities, you will be eligible to claim relief on your tax return. Ideally the person with the highest marginal rate of tax should be making the gift aid payments so that their basic rate band increases.

Savings allowance: Basic rate taxpayers have a personal savings allowance of £1,000 for tax free interest. For higher rate taxpayers the allowance is £500. No allowance is available for those paying tax at 45%. You should structure your savings to make use of this allowance where possible.

Dividend allowance: The first £500 of dividend income is tax free and basic rate taxpayers pay tax on dividends at 8.75 per cent and 33.75 per cent tax rate is applicable to higher rate taxpayers. Additional rate taxpayers will pay £39.35% tax on dividends. You should plan your income from other sources if you are in receipt of substantial dividends from UK companies.

Pensions: All UK residents are entitled to contribute up to £3,600 gross (£2,880 net) towards pension regardless of income. No relief is available for those aged over 75. The annual pension contribution allowance for 2024/2025 is the lower of your relevant earnings or £60,000 gross (£48,000 net). Any unused allowance for last 3 years can be utilised in the current tax year and therefore it is important to review your pension contributions. 

Capital gains tax: The annual CGT allowance for 2024/2025 is £3,000. If your assets are jointly owned with another person or your spouse, you will each have your own allowance. If you are married, you should consider transferring assets under joint ownership to your spouse to be able to utilise their CGT allowance as transfer of assets between spouses would not bring a CGT charge.

Inheritance tax: There is a £3,000 annual exemption for gifts made during the tax year and provides parents and grandparents an opportunity to make tax efficient gifts. Any unused allowance can be carried forward one year.

A person can make as many gifts of up to £250 as they like during the tax year to each child or grandchild provided the recipient does not receive any part of the £3,000 annual exemption.

Tax planning is important to ensure that you have the right tax structure and that you are tax efficient. This also helps to ensure that your tax position takes account of evolving times and helps plan for the future. 

Note: the rates and allowances quoted are in effect at the time of writing and you should consult a professional adviser for current rates when making any tax planning decisions.

Vinku Shah FCCA is a chartered certified accountant and partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or vinku.shah@silverlevene.co.uk