Our financial expert Vinku Shah takes you through some of the tax-planning opportunities you should make note of so you make the most of them in the new tax year...

As another tax year comes to an end, it is important not to lose track of time and 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 allowance of £20,000 is available to a UK resident who is over the age of 18. There is a consultation to introduce and additional UK ISA of £5,000 in addition.
• 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 30 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.

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 per cent. Dividend income from these is tax free and there is no capital gains tax on sale.
• Enterprise Investment Scheme (EIS) - Investments in qualifying companies up to an annual maximum of £1 million (£2million where investments over £1 million are invested in knowledge-intensive companies) attract income tax relief at 30 per cent. 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.
• Seed Enterprise Investment Scheme (SEIS) – You can invest up to £100,000 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.

ALLOWANCES AND RELIEFS

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. If you are 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.

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.

Personal 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. 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 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. 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 grand parents 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.

This article is based on current practice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here. 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