Year End Tax Planning for Individuals

Year End Tax Planning for Individuals

As we approach the end of the tax year, now is the time to take a closer look at your personal finances and ask, “am I making the most of the reliefs and exemptions available to reduce my tax bill?”.

Proactive tax planning allows taxpayers to take advantage of key allowances, reliefs, and exemptions before the new tax year. Whether it’s making pension contributions, or maintaining your personal allowance, acting now can have a significant impact on your income for the next financial year.

Personal Allowance

Your Personal Allowance is the total amount of income you can earn tax-free. For the 2024/25 tax year, this stands at the first £12,570 of income received. If your total income for the tax year is below this threshold, you may not be required to pay any Income Tax.

For high earners bringing in an annual income of over £100,000, your Personal Allowance begins to take a hit. For every £2 of income earned above the £100,000 threshold, your Personal Allowance is reduced by £1. This means that individuals earning £125,140 or more throughout the tax year, will see their Personal Allowance reduced in its entirety, leaving the whole scope of their income exposed to tax.

To mitigate this loss, individuals can consider utilising tax efficient strategies to help reduce their taxable income. Making pension contributions or charitable donations are two examples of effective tax planning to bring your taxable income below the Personal Allowance threshold.

High Income Child Benefit Charge

The High Income Child Benefit Charge (HICBC) is an important consideration for families where one partner claims Child Benefit and either they or their partner have an adjusted net income above a certain threshold. From 6 April 2024, the HICBC applies where the adjusted net income is over £60,000. The charge then gradually reduces the value of Child Benefit at a rate of 1% for every £200 of income above £60,000. By the time income reaches £80,000, the entire Child Benefit payment is effectively lost.

To retain more of your Child Benefit, it’s crucial to manage your taxable income carefully. If both partners can keep their adjusted net income below £60,000, Child Benefit remains fully intact. Some effective tax-planning strategies to achieve this include making pension contributions, donating through Gift Aid and the reallocation of profits.

Gift Aid

Donations made under Gift Aid to charities or Community Amateur Sports Clubs can be a highly tax-efficient strategy. They not only reduce taxable income but can also help mitigate the High Income Child Benefit Charge if your income exceeds £60,000 and/or ease the tapering of the Personal Allowance where your earnings are over £100,000. Additionally, charitable donations can act as a buffer against moving into a higher tax band, lowering the amount of income taxed at 40% or 45%.

When you donate through Gift Aid, charities also benefit by an additional 25p for every £1 you give as long as you have paid sufficient tax.  Making gift aid payments which allows the charity to claim tax relief which is over and above the tax you have paid in the year will however create an additional liability for you.

Pension Planning

Contributing to your pension is one of the most effective and tax-efficient ways to reduce your tax liability. Pension contributions qualify for tax relief at your marginal rate, meaning basic rate taxpayers receive 20% relief, higher rate taxpayers 40%, and additional rate taxpayers 45%

You can contribute up to the higher of 100% of your net relevant earnings or £3,600 (gross) per tax year, with tax relief available on contributions within these limits. Making the most of these allowances before the end of the tax year can help reduce your taxable income, which is particularly beneficial for those nearing key tax thresholds, such as the Personal Allowance taper (£100,000+) or the High Income Child Benefit Charge (£60,000+).

Smart Tax Planning

Year End Tax Planning for Individuals

Year-end tax planning is a valuable opportunity to take control of your finances, reduce your tax liabilities, and maximise your savings. By proactively reviewing your allowances, deductions, and reliefs, you’ll be in a better position for the year ahead.

If you’re unsure where to start or need tailored advice to optimise your tax position, we’re here to help. Contact us today for personalised tax planning and accounting support to ensure you make the most of your money and stay compliant with HMRC requirements.