The end of the tax year is almost here – so here are some last-minute jobs to help shelter more of your cash from the taxman.
The tax year always starts on April 6 and ends on April 5 the following year. This is important, as the end of the tax year signifies when your tax-free allowances are about to reset – and this affects everything from your savings to pensions. It is also important to those who need to file a tax return, including self-employed workers and high earners.
It comes as most personal tax thresholds remain frozen until 2028, meaning millions of hard-working Brits will be pushed into higher tax bands over the next few years. Here is everything you need to know before the end of the current tax year.
Use your ISA allowance
If you’re a 20% basic rate taxpayer, you can earn £1,000 in savings interest every tax year before you have to pay tax on what you’ve earned, or for 40% higher rate taxpayers, the personal savings allowance is £500. You would only pay tax on savings interest earned above these amounts. Additional 45% rate taxpayers don’t get any personal savings allowance. If you’re worried you could breach these thresholds, one way to shield your savings is to use an ISA account.
You can put up to £20,000 each tax year into an ISA without paying any tax on the interest you make on your savings. You can split this allowance across different types of ISAs, for example, Cash ISAs, Stocks and Shares ISAs, Innovative finance ISAs and Lifetime ISAs. If you have a Lifetime ISA, you can only save £4,000 each tax year.
This is a special type of account for first-time buyers or people saving for retirement that gives you a 25% bonus on your savings. If you max out this full amount every tax year, then you get a 25% bonus of £1,000 every tax year. You cannot transfer your ISA allowance to another tax year.
Save for your children
There are also ISAs for children called Junior ISAs – and the good news is, any money you save into one of these accounts for your child, won’t affect your own yearly £20,000 ISA limit. You can save up to £9,000 into a Junior ISA each tax year, and each child has their own Junior ISA limit. You can open a Junior ISA for your child if they are under the age of 18 – once they turn 18, the Junior ISA automatically turns into an adult ISA.
Don’t forget your pension allowance
Your pension annual allowance is the total amount you can pay into all your private pensions before you become subject to tax. The limit is currently £60,000 and this applies across all your private pension plans – but it can be lower if you’re on a high income. If you have a “threshold income” above £200,000 and an “adjusted income “of more than £260,000, your annual allowance will be reduced by £1 for every £2 of adjusted income over the £260,000 limit.
Your allowance may also be lower if you have already flexibly accessed your pension. If you go over your annual allowance, then you’ll need to pay Income Tax on anything over the allowance. You can normally carry over any unused allowance from the previous three tax years.
Reduce your Inheritance Tax bill
Inheritance Tax is sometimes paid on the estate – this includes property, possessions and money – of someone that has died if the estate is worth more than £325,000. The standard rate you pay in Inheritance Tax is 40% above this £325,000 limit – however, in lots of cases, the limit can be much higher than this. Some couples can pass on up to £1million to their descendants.
You can also give away some money or possessions each tax year without these being subject to Inheritance Tax. Everyone has an annual gift allowance of £3,000 each tax year. You can carry over any unused annual exemption forward to the next tax year – but only for one tax year.
You can also gift up to £250 to as many people as you want every tax year, although not to someone who has already received a gift from you that has formed part of your £3,000 allowance. You’re also allowed to make wedding gifts of up to £5,000 to your child, £2,500 to your grandchild and £1,000 to another relative or friend.
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Top up your state pension
There is an important deadline coming up to plug gaps in your National Insurance record. You build up National Insurance contributions throughout your working life – but if you’ve had breaks in your employment, then you may have gaps in your record. This can then impact how much state pension you get in later life.
At the moment, you can buy missing National Insurance years dating back to 2006 – but after April 5, you will only be able to go back six tax years. To check whether you need to plug any gaps, contact the free Future Pension Centre on 0800 731 0175 if you’re under state pension age, or the Pension Service helpline on 0800 731 0469 if you’re already at state pension age.
Claim back overpaid tax
If you’ve been placed on the wrong tax code, you can apply for a refund going back the last four tax years. Your tax code is made up of numbers and letters and is used by HMRC to determine how much tax you should be paying each month. The most common code for the current tax year is 1257L for people who have one job or pension.
If your tax code is wrong for the current tax year, HMRC will ask your employer to correct it and then you should then get back any owed tax in your wages. For previous tax years, you should be sent a cheque in the post. HMRC may pay back further than four tax years under certain circumstances – for example, if it was their fault that you overpaid tax – but this isn’t guaranteed.
Get a tax break from your partner
You may also be owed money back from HMRC if you’re entitled to marriage tax allowance. Marriage tax allowance allows eligible couples to transfer £1,260 of their personal allowance to their spouse or civil partner to cut their yearly tax bill. Your personal allowance is the amount you can earn tax-free each tax year – the standard rate is currently £12,570 before you start paying tax.
Marriage tax allowance for the current 2024/25 tax year is worth up to £252 and you can also claim back for the last four tax years. If you claim for this tax year and backdate the maximum four years, you’ll get up to £1,258. For the current tax year, the higher earner will have their tax code adjusted so they pass less tax, while any tax owed for previous tax years will be sent by cheque.
Use your Capital Gains allowance
Capital Gains Tax is charged if you sell, give away, exchange or otherwise dispose of an asset that has increased in value. This normally includes most personal possessions worth £6,000 or more, apart from your car, property that is not your main home, shares and business assets.
You pay tax on the profit you have made from the asset, rather than the amount of money you got for it. There is a tax-free allowance of £3,000 or £1,500 for trusts. This cannot be rolled over if you don’t use all your allowance in one tax year. How much you pay in Capital Gains Tax depends on what you are selling.
For example, if you’re selling a property that isn’t your main home, the rate of Capital Gains Tax on any profit made above your allowance is 18% if you’re a basic-rate taxpayer, or 28% if you’re a higher-rate taxpayer.
