Year End Tax Planning 2025
As the 2024-25 tax year draws to a close, and with significant tax changes coming from 6 April 2025, now is a great time to take control of your tax affairs.
Tax rates and allowances
Income Tax
Earning between £12,571 and £50,270 will be taxed at the basic rate of 20% (dividends 8.75%).
Earning between £50,271 and £125,140 will be within the higher tax band which will be taxed at 40% tax (dividends 33.75%).
Earning over £125,140 will be taxed at the additional rate of 45% (dividends 39.35%).
Income-producing assets can be transfer to a spouse or civil partner to ensure that both are utilising all the available allowances and are taxed at their lower marginal rate.
The Personal Allowance
The Personal Allowance is frozen until 5 April 2028. This means that as incomes rise, a larger proportion falls to be taxed. The freeze is expected to end from 6 April 2028, with personal tax thresholds uprated in line with inflation after this date.
Watch where income exceeds £100,000. Although the additional rate of 45% only applies to taxable income more than £125,140, you may still be subject to a higher effective rate of tax, as the Personal Allowance is reduced if adjusted net income is more than £100,000. The Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000, and where total adjusted net income is £125,140 or more, all Personal Allowance is lost. The effective ‘hidden’ rate of tax on this income, therefore, is 60%, and more if you are a Scottish taxpayer.
It may be possible to reduce taxable income and keep the Personal Allowance, by making personal pension contributions, or donations under Gift Aid.
Some people may be entitled to the Savings Allowance, which means savings income within the Savings Allowance is taxed at 0%. The amount of Savings Allowance depends on the marginal rate of tax: that is, the highest rate of tax to which you are liable. Basic rate taxpayers have a Savings Allowance of £1,000. Higher rate taxpayers have a Savings Allowance of £500. Additional rate taxpayers do not.
The Dividend Allowance is available to all taxpayers, whatever their marginal rate of tax. This charges the first £500 of dividends to tax at 0%. Savings and dividends within the Savings Allowance or Dividend Allowance still count towards the basic or higher rate band and can thus impact the rate of tax payable on income above the allowances. Some taxpayers may be entitled to the starting rate for savings.
The Dividend Allowance has become much less generous than previously, falling to £500 from 2024/25. The timing of dividends should be considered to ensure the Dividend Allowance is fully maximised.
Pension planning
You might also want to consider increasing your pension savings before 5 April 2025.
Under the current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension, the government tops this up to £5,000. If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000.
If you have income more than £100,000, your £12,570 personal allowance may be tapered. For every £2 of income more than £100,000, the personal allowance is reduced by £1, reducing to nil where net income is £125,140 or more. Additional pension contributions can be even more effective if your income is between £100,000 and £125,140; the gross pension contribution reduces net income for the purposes of calculating the reduction in the personal allowance. This is effectively a 60% tax saving.
State pension
If you have gaps in your National Insurance record, you can make voluntary contributions for the previous 6 years.
If you have gaps in your National Insurance record, we recommend that you obtain advice from an Independent Financial Adviser to determine the suitability of making voluntary payments in your particular circumstances.
Savings
If you have some spare cash, an obvious tax planning point might be to maximise your ISA allowances for the 2024/25 tax year (currently £20,000 per person). If you are 18 or over, but under 40, you can open a Lifetime ISA to save for your first home or retirement. You can put in up to £4,000 each year, until you’re 50, but you must make your first payment into your ISA before you are 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. The £4,000 Lifetime ISA limit counts towards the £20,000 ISA allowance.
Capital Gains Tax
For 2024/25 you may make gains of £3,000 tax-free. The annual exemption for 2024-25 is £3,000. This exemption cannot be carried forward into the next tax year so if you don’t use it, you lose it. Capital Gains Tax rates for sales of most assets from 30 October 2024 are 18/24% depending on your level of income and at 28% for carried interest.
If you haven’t used your annual exempt amount, consider selling or gifting assets before 5th April 2025.
Also consider utilising your spouse or civil partners’ annual exempt amount by transferring assets to them before selling them.
Business Asset Disposal Relief is available on the first £1million of an individual’s lifetime qualifying gains. This can mean that Capital Gains Tax is due at 10% rather than 24% but you need to check that the conditions are met. The Capital Gains Tax rate for Business Asset Disposal Relief is increasing to 14% for sales from 6 April 2025 and 18% from 6 April 2026.
If you own a second home, consider making an election of which property is to be treated as your primary residence, and therefore which property is exempt from Capital Gains Tax.
Prepare for the abolition of the regime non-UK domiciled individuals (non-doms)
From 6 April 2025, extensive reforms will replace the current tax regime for UK resident, non-UK domiciled individuals (non-doms). These changes are far-reaching and will significantly impact the tax position of both non-doms and UK domiciled individuals who have spent time outside the UK.
If you’re affected by the changes, we encourage you to urgently review your affairs and to explore the options available to you ahead of 6 April 2025.
Inheritance Tax
Inheritance Tax (IHT) is charged at 40% on the part of your estate (property, money and possessions) that is above the £325,000 nil rate band (NRB) at death.
Make Gifts to Use Annual IHT Allowances: You can give away £3,000 plus £250 to as many individuals as you like in a year. Other limits apply to gifts in connection with marriage. It is important to keep records of gifts so that your representatives have a clear record when they are dealing with IHT after you’re gone.
Please note that there are other rules regarding IHT gifts such as regular gifts out of income and the 7-year rule.
In addition to the announcement that current thresholds for NRB and RNRB are frozen until 5 April 2030, something which will bring more estates within scope of IHT by 2030, are the significant restriction to two key IHT reliefs: Business Property Relief (BPR) and Agricultural Property Relief (APR), applying from 6 April 2026 and the inclusion of unused pension funds and death benefits payable from a pension in the estate at death from 6 April 2027.
Furnished Holiday Lets
From 6 April 2025 the special rules for furnished holiday lets (FHLs) are being abolished. FHLs will be treated as a normal rental property business and the valuable tax reliefs previously available will be lost.
If you are thinking of selling your FHL, doing so before 6 April 2025 could be beneficial as it may allow you to claim Business Asset Disposal Relief and access the lower 10% rate of Capital Gains Tax. Alternatively, you may need to consider stopping the FHL business before the end of the tax year to qualify for Business Asset Disposal Relief on a sale within the next three years.
It is worth considering that you can still claim capital allowances for expenditure on a qualifying FHL prior to 6 April 2025, so you may wish to accelerate such expenditure.
Consider the best use of any losses available. Following the changes, FHL losses will be converted into normal property losses and available to offset against your other property income and not just FHL profits.
Double cab pick-ups
Make the most of the beneficial treatment before its gone.
From April 2025, HMRC will no longer use the VAT definitions of ‘car’ and ‘van’ to classify double cab pick-ups for benefit in kind (BIK) and capital allowance purposes, or when restricting car hire costs for calculating business profits. Instead of treating double cab pick-ups with a payload of one tonne or more as vans, the classification will be based on the vehicle’s primary suitability when it’s made available. With only vehicles “of a construction primarily suited for the conveyance of goods or burden of any description” being classified as vans, most (if not all) double cab pick-ups will be treated as cars.
From 6 April 2025, employees using double cab pick-ups for personal use will face higher Benefit In Kind (BIK) charges. Consequently, employers will have more Class 1A National Insurance contributions (NICs) to pay. This will apply to both the use of the vehicle itself, which will be based on the vehicle’s list price and CO2 emissions, and for fuel for private journeys.
Transitional rules apply to double cab pick-ups bought, ordered or leased before 6 April 2025, allowing businesses to rely on the previous treatment until the earlier of the vehicle’s disposal, the end of the lease, or 5 April 2029.
From 1 April 2025 for corporation tax and 6 April 2025 for income tax, businesses buying double cab pick-ups won’t be able to claim the same level of capital allowances as when these vehicles were classified as vans. For instance, a new van may qualify for 100% full expensing, whereas cars cannot. Transitional rules apply to expenditure incurred on double cab pick-ups as a result of contracts entered into before 1 April 2025 for corporation tax and 6 April 2025 for income tax, where the expenditure is incurred on or after that date but before 1 October 2025. In such cases the old treatment will apply.
From 1 April 2025 for corporation tax and 6 April 2025 for income tax, businesses leasing double cab pick-ups with CO2 emissions of more than 50g/km – in practice, this will be virtually all of these types of vehicles, will only be able to get relief for 85% of the costs, compared to previously being able to deduct the full cost.
Transitional rules apply to expenditure incurred on the hire of double cab pick-ups where the contracts for hire are entered into before 1 April 2025 for corporation tax and 6 April 2025 for income tax, and the expenditure is incurred on or after these dates but before 1 October 2025. In these cases, the old rules will apply.
Tax planning can be complex. We would always recommend that you seek professional advice when undertaking a review to ensure all changes are processed and managed effectively.
We hope that you find this guide useful, but please bear in mind that this only provides a summary of the options you should be considering and not all options will be suitable for everyone.
This guide is for general information only and does not substitute specific advice. You should not rely on it as specific advice and Peria & Co cannot accept any liability for its contents. If you need guidance, please contact us at info@peria.co.uk or call us on +44 (0)1932 849023.
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