Tax planning in the 2024/25 tax year

Now we have entered the 2024/25 tax year, individuals and businesses must navigate the complexities of tax planning to ensure they are both compliant and efficient in managing their liabilities. The ever-evolving tax landscape, with its new rules and rates, necessitates a forward-looking approach to tax planning. This blog aims to guide you through key considerations and strategies for this new tax year, helping you to optimise your financial position while adhering to tax regulations.

 

Understanding Your Tax Environment

The UK tax system encompasses various taxes, including Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax and VAT, among others. Each of these taxes has its own set of rules, thresholds, and rates, which can be subject to change from one fiscal year to the next. Staying informed about these changes is crucial for effective tax planning.

 

 

Income Tax Planning for Individuals

For individuals, the personal allowance of £12,570 —the amount you can earn before you start paying Income Tax—remains a focal point. Maximising your use of this allowance, along with any applicable tax bands, can significantly impact your net income. Consider:

• Utilising ISAs: Individual Savings Accounts (ISAs) offer a tax-efficient way to save, as any returns or interest earned within an ISA is tax-free.
• Pension Contributions: Contributions to your pension can reduce your taxable income, thereby lowering your tax liability while preparing for retirement.
• Gift Aid Donations: If you’re a higher or additional rate taxpayer, making donations through Gift Aid can increase the value of your donations to the charities while allowing you to reclaim tax on the amount donated.

 

Corporation Tax and Business Planning

With Corporation Tax rates subject to change, businesses must stay agile in their tax planning strategies. Ensuring that expenses are efficiently managed and investments are planned to optimise tax reliefs and allowances is crucial.

• Research & Development (R&D) Tax Credits: For businesses engaged in research and development, taking full advantage of R&D tax credits can offer significant savings.
• Capital Allowances: Investing in business assets? Capital allowances can provide tax relief for the capital expenditure, reducing your taxable profit.

 

Capital Gains Tax (CGT) Planning

The disposal of assets such as property or shares can trigger CGT. Planning around the timing of these disposals and utilising allowances and reliefs (e.g. the annual exempt amount of £3,000) can mitigate CGT liabilities.

• Asset Transfer: Transferring assets between spouses or civil partners can be done without incurring CGT, allowing couples to make full use of both individuals’ annual exempt amounts.
• ISAs:  Capital Gains on investment within an ISA are CGT free.

 

Inheritance Tax (IHT) and Estate Planning

IHT planning remains a crucial aspect of financial planning, especially for those wishing to pass on assets to their heirs.

• Gift Allowances: Making use of annual gift allowances and potentially exempt transfers (PETs) can help in reducing the future IHT liability of your estate.
• Trusts: Proper use of trusts can also be an effective way to manage how your assets are passed on, potentially offering a way to mitigate IHT liabilities.

 

 

VAT and Indirect Taxes

Businesses must also navigate the complexities of VAT and other indirect taxes. Ensuring correct VAT registration, understanding the applicability of various VAT schemes, and compliance with VAT reporting requirements are all essential components of tax planning.

 

Conclusion

Tax planning for the new 2024/25 tax year requires a comprehensive approach, encompassing everything from Income Tax and Corporation Tax to CGT, IHT, and VAT considerations. By staying informed about the latest tax rules and leveraging available allowances and reliefs, individuals and businesses can optimise their tax positions. It is always advisable to seek professional advice tailored to your specific circumstances to navigate the complexities of tax planning effectively. Remember, proactive and strategic tax planning is key to achieving financial efficiency and ensuring compliance with UK tax laws.  You know it makes sense.*

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority do not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.