Nine ways to boost your savings, pension and disposable income before new tax year
On 6 April, we start a new tax year – which means you have a month to make the most of 2024-25 allowances and ensure you remain within tax thresholds.
Interactive Investor, a flat fee investment platform, has shared with Money its nine-point end-of-tax-year checklist.
Get the most of your ISA allowance
The annual ISA allowance resets on the 6 April 2025, and it’s a “use it or lose it” allowance, meaning up to 5 April, you can deposit up to £20,000 into an ISA tax-free.
Holding money in an ISA protects your savings and investments from income tax, dividend tax, and capital gains tax (CGT). If you have unused ISA allowance and plan to deposit more money into your ISA, make sure you do before the allowance resets.
Max out your pension contributions
Every year you can invest 100% of your earnings, up to a maximum of £60,000, into your pension and get tax relief on your contributions.
This relief comes in the form of government top-ups, which are a 20% boost for basic-rate taxpayers. Higher-rate taxpayers can claim extra relief via a self-assessment.
If you have maxed out your ISA allowance and wish to save more money elsewhere, then consider using your pension to do so.
Use your capital gains allowance
If you’re sitting on profits from shares, property, or other investments, consider securing your gains now to use up the current £3,000 allowance.
Bed and ISA strategies – selling assets and rebuying them within an ISA – can also help keep future gains tax-free.
What’s more, if you have a spouse, it’s worth remembering that spreading assets before selling can double your tax-free allowance. Also, transfers between spouses are tax-free, making it an easy way to reduce tax when selling shares or property.
On that note…
Make the most of your spouse’s allowances
There are three ways you can use your spouse’s allowances to take full advantage of the tax benefits.
- Firstly, you can transfer assets to make use of both ISA allowances. As couples get a £20,000 ISA allowance each, you can shelter up to £40,000 tax-free as a household each year. So, if one partner has more savings and/or investments, consider gifting assets to your spouse so they can invest in their ISA.
- Secondly, both pension allowances should be used. If one partner is a higher-rate taxpayer, they can contribute to the lower-earning partner’s pension – helping to balance retirement savings and maximise tax relief.
- Lastly, you can take advantage of the marriage allowance. If one spouse earns less than £12,570 a year – their personal allowance – they can transfer £1,260 of it to the higher-earning spouse, saving up to £252 in tax per year.
Check your state pension contributions
The state pension rules are changing and, from April 2025, you won’t be able to top up missing national insurance years going back as far as 2006. Instead, you’ll only be able to go back as far as six years.
If you’ve got gaps in your record, now’s the time to buy back years.
Get dividend savvy
If you invest outside of a SIPP or ISA, such as a trading account, your personal dividend allowance is £500, which can be paid to you tax-free.
Before making any new investments in your trading account, consider making them in your ISA where you have an uncapped ISA dividend benefit.
Claim tax relief on charitable donations
Ticking that gift aid box adds 25% to your donation, and higher-rate taxpayers can claim back additional tax relief.
If you’re on the cusp of a higher tax band, gift aid donations can help bring you back down and ensure you avoid paying tax at a higher rate.
Avoid losing child benefit or the personal allowance
Child benefit starts getting taxed for those earning £60,000, due to the High-Income Child Benefit Charge (HICBC). What’s more, if you earn over £100,000, your personal tax-free allowance (£12,570) is reduced.
One solution to maintain your full child benefit is to make pension contributions. This reduces your taxable income, helping you stay below the thresholds and maintain more of your benefits.
Don’t forget junior ISAs
Children get an ISA allowance too and they can save up to £9,000 in a Junior ISA (JISA) tax-free.
Paying into a JISA is a great way to build a nest egg for the youngest members of your family, and tax-savvy parents and grandparents who have already maxed out their ISA allowance can also choose to boost the coffers of their offspring and grandchildren instead.
