UK residents are running out of time to get their finances in order, experts say. The current tax year concludes on April 5 2025, marking the final chance to “use or lose” certain allowances.
Tim Bennett, Partner and Head of Education at Killik & Co, has offered his advice on how to save and invest in a tax-efficient manner ahead of the deadline.
The adult ISA
There’s still time to boost these with a lump sum – the maximum annual investment into cash, shares, funds or a mix is £20,000, and everything inside is shielded from income and capital gains tax.
This allowance expires on April 5 and cannot be carried forward or reclaimed in any way from April 6.
The Junior ISA
This operates on the same principle but for children. The annual limit is £9,000 and the tax deal is similar, except that a JISA is exempt from inheritance tax, unless and until it is converted into a full ISA. This allowance, or as much of it as you can afford, must be used up by April 5.
Pensions
This might be more challenging to arrange in the short term in many cases, but this is where an employer agrees to match pension contributions into a workplace pension above the minimum contribution. Essentially, this is free money so ensure you’re not missing out.
The go-to option for private pensions in the current climate is typically a Self-Invested Personal Pension (SIPP). Individuals are allowed to contribute as much as £60,000 to their SIPP, subject to affordability checks, and can also carry over up to three years of unutilised contributions.
It’s particularly noteworthy that if your annual income surpasses £100,000—ideally not marginally over £125,000 for this strategy—pension contributions can be an astute method to reclaim the personal tax allowance that would otherwise be reduced.
As for Junior SIPPs, these pose a parallel opportunity for parents or grandparents looking to invest in pension savings on behalf of their young ones. With such accounts, the government tops up to £720 on a maximum yearly input of £2,880. And thanks to the magic of compound interest over time, these can become quite significant given a child’s access to the funds isn’t usually permitted until they reach 55.
Surplus cash
When it comes to spare funds, it’s key everyone has some savings set aside for emergencies and “foreseeable calls on capital.”
Nonetheless, with interest rates on the decline and inflation heading the opposite direction, individuals should contemplate getting their excess cash into action. Incrementally investing these reserves into fluctuating markets could very well yield lucrative outcomes.
Maximise your CGT allowances
With the tax year ending on April 5, don’t miss out on using your £3,000 capital gains tax-free allowance. If you’re considering selling shares, timing is key. Remember, transfers to your spouse or into an ISA via a “bed and ISA” strategy are CGT exempt.
Inheritance tax
Don’t let inheritance tax take a bite out of your legacy. Consider utilising inheritance tax (IHT) gifting options to reduce the value of your estate upon death. You can gift £3,000 annually to someone special and make additional £250 gifts to as many people as you like each tax year. Plus, regular gifts from income are possible, provided they’re affordable.
Keep in mind that “potentially exempt transfers” have a seven-year rule for IHT purposes.
