Pre Year End Tax Planning For Individuals 2025

As the current tax year is heading to a close, at Lambert Chapman, we like to consider the upcoming changes and what you can do to impact your tax position.  Included below are some tax planning points that may be relevant for you, your family and your business.

Loss of the Personal Allowance – high earners

Where an individual’s income exceeds £100,000 per year, the personal allowance is reduced by £1 for every £2 of net income over £100,000.

It is often the case that individuals receive pay rises, but the personal allowance in the tax code has not been correctly adjusted. Although HMRC is supposed to adjust the tax code on a ‘real-time’ basis, sometimes they do not, which can lead to an unwanted tax bill where HMRC seeks to recover the tax at the year’s end.

For example, if your income went from £100,000 to more than £125,140, you would lose your full personal allowance of £12,570, meaning that an additional £5,028 of tax would be due.

The loss of the personal allowance means that you have an effective tax rate of 60% for income between £100,000 and £125,140 and income of more than £125,140 will be taxed at 45%.

If you have or are expecting a pay rise that will take your income above £100,000, you should contact either HMRC or us, to ensure that your tax code is updated to reduce the underpayment of tax.

Reducing taxable income

As indicated above, there are significant advantages in reducing taxable income. It may prevent the top slice of income from falling into the top tax bands.

Taxable income can be reduced by moving investments into non-taxable investments, contributing to a pension, or giving to a charity. Where possible, income can also be deferred into another tax year or assets that give income can be given to a spouse or civil partner that incurs a lower tax charge.

Trading losses from self-employment income can be set off against other income earned in the same year. Losses in the first four years of the business can be carried back up to three tax years.

Reducing income (through increased pension payments, charitable donations, or other measures) is also beneficial to retaining Child Benefits. Child Benefits are clawed back at 1% of the benefit for every £100 of income over £60,000. If both parents keep their income below £60,000, the Child Benefit will not be clawed back.

 Pension Contributions

The standard annual allowance for pensions is £60,000, plus any unused relief brought forward from the prior three years. The previous standard allowance was £40,000 (prior to 5 April 2023), so where no pension contributions were made in the previous 3 years, it may be possible to make gross pension contributions of up to £200,000 prior to 5 April 2025.

Tax-efficient investments

There are a number of tax-efficient investments. Some of these permit the investment to be carried back to previous years to accelerate tax relief. For example, up to 100% of investments into a qualifying EIS company can be carried back to the previous year. A maximum investment of £1 million is permitted (£2 million if invested in one or more qualifying knowledge-intensive companies). Tax relief is available at 30% and can be carried back a tax year.

Additionally, 50% income tax relief can be claimed on up to £200,000 in start-up companies. This can also be carried back to previous years.

ISA Allowances

UK residents aged 18+ can invest up to £20,000 each and parents can fund a Junior ISA or Child Trust Fund with up to £9,000 per child for 2023/24 – making a total of £58,000 for a family of four.

Children will automatically have access to the funds in their ISA or CTF when they reach age 18, but ISAs are a useful vehicle for building up funds to support them through higher education.

Investors who have not used up their full ISA allowance should consider selling shares, yielding dividends outside their ISA and buying them back within this tax-exempt wrapper, although care should be taken as this could trigger a capital gains tax charge.

Lifetime ISA – UK residents aged 18 or over but under 40 can open a Lifetime ISA, they can then put in up to £4,000 each year, until they’re 50. You must make your first payment into your ISA before you’re 40.

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

The Lifetime ISA limit of £4,000 counts towards your annual ISA limit, which per above is £20,000 for the 2024 to 2025 tax year.

Trading Income: Basis Period Reform

Basis period reform mainly affects the self-employed (sole traders) and partnerships which do not use an accounting period end date between 31 March and 5 April.  The changes mean that you will have to report your business accounting information on a tax year basis on your tax return starting from the 2024/25 tax year.

The rules regarding basis periods are changed from the 2023/24 tax year.

If you choose not to change your accounting year-end, the profits will be apportioned between different tax years.

For example, if you have a year-end of 31 December, then the profits reportable for the tax year to 5 April 2025 will include 9 months of profits from the Y/E 31/12/24 and 3 months from the Y/E 31/12/25. As the filing deadline will be 31 January 2026, the profits figure for the Y/E 31/12/25 would likely need to be estimated. It would then be necessary to submit accurate figures via an amended tax return once the accounts have been finalised.

Capital Allowances

As the basis period for trades is now aligned with the tax year-end, if assets are being acquired, they will need to be brought into use before 6 April 2025 to qualify for a claim in the current basis period.

Company Cars

If you are considering replacing a company car, please be aware that tax bands are increasing by 1% per year, in the tax years 2025/26, 26/27 & 27/28.

• For cars with CO2 emissions of <75g/km – the maximum rate will be 20%.
• For cars with CO2 emissions of 75g/km and above – the maximum rate will be 37%.

The increases will then be 2% per year in the tax years 28/29 & 29/30.

Reporting Benefits in Kind (BiK) and P11d forms

Please note that from April 2026, it will be mandatory to report these via payroll software.

The deadline for reporting BiK’s on P11d’s for the year ended 5 April 2025 is 6 July 2025. Therefore, you should provide us with all relevant information as soon as possible after 5 April 2025.

Capital Gains Tax

Everyone can realise capital gains up to the annual exemption of £3,000 in 2024/25. The exemption is available to each individual, including minor children, but any exemption unused in a year cannot be carried forward. Married couples and civil partners can transfer assets between them on a no-gain/no-loss basis and such transfers should be considered to ensure that the annual exemption can be fully used.

Remember, if you sell a UK residential property and there is tax due, a report must be made to HMRC within 60 days of completion.

Make Gifts to Use Annual IHT Allowances

You can give away £3,000 plus £250 to as many individuals as you like in a year. Other limits apply to gifts in connection with marriage.

Please note that there are other rules regarding IHT gifts such as regular gifts out of income and the 7-year rule. Should you wish to consider these, we recommend that you contact us to obtain the relevant advice to ensure that you follow the correct procedures and thus preserve the tax savings that you seek.

State Pension

If you have gaps in your National Insurance record, you can make voluntary contributions for the previous 6 years.  Visit www.gov.uk to find out more or seek advice from the Future Pension Centre (if you’re below the State Pension age) or the Pension Service (if you’ve reached the State Pension age).

If you have gaps in your National Insurance record, we recommend that you obtain advice from an Independent Financial Adviser to determine the suitability of making voluntary payments in your particular circumstances.

Summary

If you would like to discuss any of the tax planning points above, please do get in touch with us.  The Spring Statement will be on 26 March 2025 and although it is unlikely to include any major tax changes, it is important that tax planning is done early.

Please also see our articles online regarding changes to the taxation of Furnished Holiday Let properties from April 2025 and the new residency regime.