The start of the tax year brings new tax allowances and is a chance to look at maximising your tax planning. These are some of the main tax planning allowances to consider for the tax year 2024/25.

Income Tax and Other Allowances.

The personal allowance (the amount you earn before you pay income tax) remains frozen at £12,570 and the higher rate threshold is unchanged at £50,270, both frozen until 2028. As average pay is on the increase this has brought more people into higher rate tax.

Recent state pension increases also mean more pensioners are paying tax on other income.

The personal savings allowance which allows you to earn interest tax-free remains at £1,000 (and at £500 for higher rate taxpayers). The dividend allowance, (the tax-free amount you can earn from investments before paying tax), has halved again to £500.

Action point. As interest rates have risen, you may be in danger of exceeding your allowances.

• Consider rebalancing investments so that each individual in the couple has enough income covered by their personal allowance.
• Look at the underlying investments to produce income or capital only, and use tax wrappers.

Fill Up Your ISA.

The ISA allowance for 2024/25 tax year stays at £20,000 and at £9,000 for Junior ISAs.

ISAs remain one of the simplest tax planning vehicles – there are no complicated structures, just an open wrapper in which different investments can be placed. Don’t just think of Cash ISAs! Stocks & Shares ISAs offer an alternative, and you don’t have to go into risky market-based investments if that doesn’t suit you.

Once savings are within ISAs, they are free from Capital Gains Tax (CGT) and Income Tax. The long-term benefits of ISAs can really add up; especially for generating a tax-free income in retirement.

Capital Gains Tax (CGT).

The CGT allowance (how much profit you can make before you pay CGT) decreased from £12,300 to £6,000 in 2023/24 – and now to £3,000 in 2024/25.

Action point. Any assets outside a tax wrapper (ISA or pension) could be liable for CGT.

• Consider rebalancing investments so that each individual in the couple has enough income covered by their CGT allowance.

Don’t Forget Your Pension.

Pension rules have made a big difference, and the tax relief on pension contributions can boost investments. For a basic rate taxpayer, investing £1,000 into an ISA requires £1,200 salary before income tax (plus national insurance). To put £1,000 into a pension costs just £800 as £200 tax relief is added. For a higher rate taxpayer, the net contribution is effectively £600 as £200 is given as relief through your tax return.

Pension annual allowance.

You can now save up to £60,000 into a pension each year (up from £40,000 in 2022/23) – and “carry forward” may be available to use allowances from previous years.

Action point. What do you currently contribute to your pension? When was that figure last reviewed?

Lifetime Allowance Abolished.

One big change now in place removed the previous limit on how much could be saved within a pension (£1,073,000) before an additional tax charge was applied.

Pensions remain outside your estate for Inheritance Tax purposes so now provide an even bigger opportunity to pass on assets to your beneficiaries.

Action point. Consider reviewing the balance between pension and non-pension assets.

Any Questions? – If you want help or advice on the best options for you, speak to the team here at Raymond James Hitchin. Remember, tax treatment depends on individual circumstances and may be subject to change in the future.

Contact us for a quote.

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