Maximising tax-free allowances before 5 April 2025
The recent announcements regarding Inheritance Tax (IHT) in the 2024 Autumn Budget have had a big impact on the business and farming sectors. Similarly, changes affecting individuals who benefit from the UK domicile and residence rules will significantly alter their tax landscape. While these topics warrant separate discussion, it's essential not to overlook several other changes that affect a broader range of taxpayers, as well as the usual considerations for tax year-end planning.
To start, maximising annual tax-free reliefs and allowances before the 5 April 2025 deadline is crucial. Individuals have a personal savings allowance of £1,000 or £500, depending on whether they are basic or higher-rate taxpayers (this allowance is not available for additional-rate taxpayers). For those exceeding these thresholds or looking for a tax-efficient approach, the annual ISA investment allowance stands at £20,000.
Additionally, contributing to retirement savings can yield significant benefits, with effective tax relief of 20%, 40%, or even 60% available on qualifying contributions, depending on individual circumstances. It’s important to review personal allowances and thresholds relevant to pension contributions before taking action.
Those uncertain about their state pension position should apply for a state pension forecast and check for any gaps in their National Insurance (NIC) record as soon as possible, especially since the opportunity to pay voluntary NICs to bridge gaps from April 2006 to April 2016 will expire after 5 April 2025.
Key changes to inheritance tax and capital gains tax
Regarding IHT, there are several exemptions worth noting. An annual gift exemption allows individuals to give away £3,000 per donor (which can be carried forward one year to total £6,000 if not utilised).
Additionally, a small gifts exemption of £250 per beneficiary per tax year is also available. However, be cautious with gifts of assets, as they may have other tax implications, including potential liability for capital gains tax (CGT).
As of 30 October 2024, CGT rates increased, rising from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. The annual exemption for taxable gains is £3,000, so it’s important to use it or lose it.
Business owners eligible for Business Asset Disposal Relief will also see changes; the CGT rate on the first £1 million of eligible gains will increase from 10% to 14%, starting on 6 April 2025, with a further increase to 18% beginning on 6 April 2026. If a sale is anticipated, it’s advisable to consider timing and pre-sale planning options sooner rather than later.
Implications for property owners and investors
The special tax treatment provided for Furnished Holiday Lets (FHL) will be eliminated from April 2025, resulting in the loss of favourable CGT treatment, full mortgage interest relief, and Capital Allowances (CAs) on qualifying capital expenditures. FHL owners should re-evaluate their rental models; if short-term holiday lets remain a preferred option, they might consider accelerating qualifying capital expenditure to benefit from CAs while they are still available.
Finally, for individuals purchasing residential property, the threshold for Stamp Duty Land Tax (SDLT) will reduce from £250,000 to £125,000, effective from 1 April 2025. Additionally, the surcharge on individuals owning multiple residential properties has increased. Therefore, those looking to buy residential property should be clear about their SDLT liabilities and consider whether expediting their purchase could be advantageous.
As with all tax planning, it is vital to take into account both non-tax and financial implications, not solely focusing on the tax landscape.
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