Tax-Efficient Strategies for Year-End Planning: Maximise Your Savings Before 5th April

With the tax year drawing to a close, both individuals and businesses in the UK have the opportunity to take advantage of strategic planning to reduce their tax liabilities. Smart year-end tax planning can deliver significant savings, while ensuring that you’re well-prepared for the new financial year. Here’s a guide to some of the most effective tax-efficient strategies for UK-based clients, including investment management, retirement contributions, and charitable giving. We’ll also highlight recent tax regulation changes that may impact your decisions.

 1. Utilise Your ISA Allowance for Tax-Free Growth

Individual Savings Accounts (ISAs) remain one of the best ways for UK taxpayers to shield investment income from tax:

Maximise ISA Contributions: For the 2023/24 tax year, individuals can contribute up to £20,000 across Cash ISAs, Stocks and Shares ISAs, or a combination of both. Since any unused allowance cannot be carried over to the next year, it’s wise to make the most of this tax-free opportunity before 5th April.
Consider Junior ISAs for Children: Parents or guardians can contribute up to £9,000 per child per tax year, which can help fund future educational or other expenses, while growing tax-free.

ISAs offer flexibility, allowing you to withdraw funds tax-free at any time, making them a top choice for both short-term and long-term tax-efficient investing.

2. Capital Gains Tax (CGT) and Tax-Loss Harvesting

Capital Gains Tax (CGT) planning is crucial for anyone with investments or assets that have appreciated in value. For 2023/24, the annual CGT allowance is £6,000 (down from £12,300 in previous years), meaning it’s more important than ever to consider ways to manage CGT effectively:

Sell Assets to Use the CGT Allowance: If you have gains on assets, consider realising them up to the £6,000 CGT allowance. Couples can combine their allowances, enabling a total of £12,000 in tax-free gains.
Offset Gains with Losses: If you’ve made gains on some investments, offsetting these gains by selling underperforming assets can reduce your CGT liability. Known as “tax-loss harvesting,” this strategy can be effective for investments outside of ISAs or pensions.

Tip: If you’re selling shares or funds for tax-loss harvesting, remember the “bed and breakfast” rule, which states that you cannot repurchase the same shares within 30 days if you want the tax loss to apply. Consider purchasing similar assets to avoid a lapse in your investment strategy.

3. Make the Most of Pension Contributions

Pension contributions offer one of the most generous tax benefits available in the UK, as they allow for tax-free growth and attract government relief:

Claim Tax Relief on Pension Contributions: Basic-rate taxpayers get 20% tax relief on pension contributions automatically, while higher- and additional-rate taxpayers can claim further relief through their tax return. If you’re a higher-rate taxpayer, pension contributions can effectively “shrink” your taxable income, potentially saving thousands of pounds.
Maximise Annual Allowances: You can contribute up to £60,000 per year (or 100% of your earnings, whichever is lower). If you haven’t fully used your annual allowance from the last three tax years, you can “carry forward” unused allowances to maximise contributions.
Stay Aware of the Lifetime Allowance (LTA): Though the LTA tax charge was removed in April 2023, keeping track of your pension pot’s size relative to the LTA (£1,073,100 for 2023/24) is still essential for future planning.

Pro Tip: Pension contributions can be a smart choice for business owners. Companies can make employer contributions directly to employees’ pensions (including their own if they are directors), which is tax-deductible against profits.

4. Give to Charity and Maximise Tax Relief

Charitable donations not only support valuable causes but can also provide tax relief for individuals and businesses:

   - Gift Aid Donations: When you donate through Gift Aid, the charity claims an extra 25p for every £1 donated, and if you’re a higher-rate taxpayer, you can claim the difference between the basic and higher rate on your donation.
   - Consider Donor-Advised Funds (DAFs): For those planning substantial donations, a donor-advised fund allows you to make a large, tax-efficient donation at once, while spreading the distributions to charities over time.
   - Donate Shares or Land for Additional Tax Savings: Donating shares or land allows you to avoid CGT while also giving you income tax relief on the market value of the gift. This can be particularly attractive for those holding high-value assets outside tax-sheltered accounts.

5. Explore Reliefs for Business Owners

For business owners, year-end planning can offer additional ways to save:

   - Utilise Annual Investment Allowance (AIA):  The AIA allows businesses to deduct 100% of the cost of qualifying assets (like machinery and equipment) up to £1 million per year. Investing in equipment before 5th April can reduce your taxable profits, freeing up cash flow for other purposes.
   - Consider Research and Development (R&D) Tax Credits:  R&D tax credits are available to businesses conducting innovative research or product development. SMEs can receive up to 33% of eligible R&D costs, while large companies can claim a tax credit through the R&D Expenditure Credit (RDEC) scheme.
   - Employee Benefits and Salary Sacrifice Schemes: Offering employee benefits, such as salary-sacrifice pension contributions or cycle-to-work schemes, can reduce your business’s NI contributions and provide tax-efficient perks to your employees.

6. Stay Informed on New Tax Regulations

Several recent tax changes in the UK may impact tax planning for both individuals and businesses. Here are the highlights:

   - Corporation Tax Rise for 2023/24: The main rate of corporation tax increased to 25% for profits over £250,000, with a small-profits rate of 19% for profits up to £50,000. For businesses close to the threshold, careful planning can help manage the impact of this change.
   - Reduction of the Dividend Allowance and CGT Allowance: In addition to CGT allowance cuts, the dividend allowance decreased to £1,000 in 2023/24 (and will reduce further to £500 in 2024/25). This makes it more important for shareholders and investors to consider tax-efficient wrappers such as ISAs and pensions for their investments.

Staying informed and proactive with these strategies can help reduce your tax burden and strengthen your financial position for the upcoming tax year. By taking advantage of tax allowances and deductions before 5th April, individuals and businesses can make the most of their finances and minimise tax liabilities.

Wrapping Up: Take Action Before 5th April

Year-end tax planning can be complex, but it’s essential for securing your financial future. Remember that while these strategies can provide general guidance, everyone’s financial situation is unique. Working with an accountant or financial advisor who understands your goals and circumstances can help you navigate the complexities and maximise your tax savings.

This year, commit to reviewing your finances and taking advantage of these opportunities before the tax year ends. A few proactive steps now can pay off substantially in savings and peace of mind in the new tax year.