How to get the most from the 2024-25 tax year
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
A new tax year (starting in April) offers a great opportunity to optimise your finances to keep more of your hard-earned income, savings and returns. With the arrival of 2024-25, many clients in Grantham and across Lincolnshire have been asking financial planners how to get the most from their refreshed allowances.
Below, we explain some key changes to the tax landscape since April 2024 and offer ideas on how to improve and safeguard your tax plan in 2024-25. We hope these insights are useful to you. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:
01476 855 585
info@casfin.co.uk
Refreshed ISA allowance
Individuals are entitled to an annual ISA subscription each year. Currently, this is £20,000, which is the maximum new money that can be paid into ISAs. For instance, in 2024-25, someone could contribute £4,000 to a Lifetime ISA, £10,000 to a Stocks and shares ISA, and £6,000 to a Cash ISA.
Unfortunately, when a new tax year arrives on 6 April, any unused ISA allowance from the previous year is lost and unrecoverable. Planning your ISA strategy early in 2024-25, therefore, could enable you to minimise this risk.
Rather than rushing to gather any leftover savings in February or March 2025, you have time to schedule regular (e.g. monthly) contributions. Yet, how much should you contribute? Which ISA type(s) are best? The answers depend on your specific financial goals and situation.
For instance, a first-time buyer will likely benefit from focusing on maximising their Lifetime ISA due to the 25% “top up” from the UK government when the funds are used to buy a first home. Conversely, someone looking to build up an emergency fund may find the cash ISA useful.
It is worth noting that a “British ISA” has been accounced in the recent 2024 Spring Budget. Here, the idea is to offer individuals an extra £5,000 ISA allowance (on top of their existing £20,000 allowance) if they invest in UK shares. More details are expected later this year.
Lower tax allowances
Investors may be frustrated to discover that their tax-free allowances for capital gains (the Annual Exempt Amount) and dividends have shrunk in 2024-25. In the previous tax year, these stood at £6,000 and £1,000, respectively. Now, they are £3,000 and £500.
Naturally, this raises the incentive for many investors to use their ISA allowance to “store” investments – e.g. via a Stocks & Shares ISA. Another tax-mitigation strategy is to work constructively with your spouse or civil partner to optimise both of your respective allowances.
For instance, suppose an individual owns a Buy to Let property which he wishes to sell in 2024-25. If the sales generate £15,000 in capital gains then only £3,000 will be covered by his Annual Exempt Amount (assuming none of it has been used). However, by moving the property into joint ownership with his wife, they could “combine” their allowances and “shield” up to £6,000 from capital gains tax.
A unique pension “window”
2024 is likely to be a general election year. As new manifestos and campaign promises arrive and new hands take the helm of power, tax and pension rules may be subject to change.
For instance, the lifetime allowance (the total “tax-free cap” on an individual’s pensions) was removed on 6 April 2024. This brought in two replacement allowances: the Individual’s Lump Sum Allowance (LSA) and the Individual’s Lump Sum and Death Benefit Allowance (LSBDA).
The new rules are complex, but the key takeaway for clients is that only the “tax-free elements” of pension savings are taken into account when determining the total tax-free amount that someone can save into their pensions (rather than considering the total value).
More specifically, the total tax-free amount that an individual can take from their pensions now stands at £268,275 (i.e. 25% of £1,073,100, which was the previous lifetime allowance). In simple terms, this is broadly welcome news for many pension savers who may be able to save more into their pots without paying extra tax when eventually accessing benefits.
Another recent change has been the expansion of the maximum annual allowance for pensions to £60,000. Previously it was £40,000, so this allows some savers to boost their total yearly pension contributions by up to £20,000 whilst receiving tax relief.
However, please note that if your total earnings for 2024-25 are below £60,000, then this will be your annual allowance.
Some of these rules could change if a new government emerges in 2024. Consider seeking professional financial advice to make sure your retirement plan is appropriately prepared for different policy scenarios.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk