Cut Your Tax Bill: Tax-Saving Moves Before 5 April 2025

As we head towards the end of the 2024/25 tax year (which runs from 6th April 2024 to 5th April 2025), now is a good time to double-check if you’re paying the right amount of tax.

Whether you’re focusing on personal tax or looking at your company’s tax position, there are some simple steps that could help you reduce your tax bill. 

Reviewing your personal tax bands

For most of us, the first £12,570 of income is covered by our tax-free personal allowance, and the next £37,700 is taxed at the basic rate of 20%. 

Anything over £37,700 (up to £125,140) is taxed at the higher rate of 40%, and any income above £125,140 is taxed at the additional rate tax, so you’ll want to make sure you utilise your tax-free personal allowance and your basic rate band. 

And, if you or your partner has some unused allowance or space in your basic rate band, it’s a good idea to think about ways to make the most of it.

Boosting your pension and gift aid contributions

If you’re a higher rate taxpayer, a personal pension contribution can extend your basic rate band. 

For example: if you want £10,000 to go into your pension, you’ll only need to put in £8,000 yourself. HMRC will add the remaining £2,000 (representing 20% basic rate relief). If you are a higher rate taxpayer you then get further tax relief of 20%.

A similar idea applies with Gift Aid donations. Your chosen charity gets a bit of extra help from HMRC, and you extend your basic rate band, reducing how much is taxed at 40%.

Be aware though that personal pension contributions can’t exceed your annual earnings, so it’s important to keep an eye on what you’re earning compared to what you’re contributing. If in doubt, it’s always best to chat with your Independent Financial Adviser (IFA) before you commit to larger pension amounts.

Sharing income with your partner

Sometimes, one partner faces a higher rate tax while the other has unused allowances, but if you transfer certain income-generating assets between you, you might both end up paying less tax overall. 

For married couples or those in a civil partnership, it’s also possible to shift £1,260 of personal allowance if one partner earns under the personal allowance threshold and the other pays tax at the basic rate. This could be worth a £252 saving on the tax bill – every little helps! And if you haven’t claimed this before, you may be able to backdate it to 5th April 2020, which adds up to a nice saving.

Rent a room relief

Taking in a lodger is an easy way to use the rent a room relief, which lets you earn up to £7,500 tax free each year and applies if you’re renting out a furnished room in your main home. 

If this is something that suits your lifestyle, it can give a useful boost to your income without a big tax liability.

ISA allowances and Child Benefit points

Don’t forget your ISA allowance of £20,000. If you can save or invest inside an ISA, any interest or gains are generally free from tax, which can help your money grow faster. And Junior ISAs have an allowance of £9,000.

Make sure you watch out for the High Income Child Benefit Charge if you have children and claim Child Benefit. If you or your partner earns above a certain level, you’ll lose some or all of the Child Benefit through an extra tax charge. Consider paying into a pension or making Gift Aid donations, which might reduce your adjusted net income enough so that you keep more of your Child Benefit. 

Also, if you chose not to receive Child Benefit in earlier years, now might be the time to see if the changes in thresholds and taper rates from 6th April 2024 mean it’s worth claiming again.

Don’t muddle your personal and company taxes

For business owners, if your business year end also wraps up on 31st March 2025, Corporation Tax might be on your mind. While your personal taxes are one thing, your company taxes are another, and it’s important not to mix them up.

Employer pension contributions

If you’re a director of your own limited company, you could have your company pay into your pension. While you won’t get personal income tax relief, your company should get Corporation Tax relief on the amount it contributes. 

Another plus is that employer pension contributions are not limited by your personal earnings, unlike personal pension contributions. We recommend you always speak to your IFA and your accountant to make sure everything lines up properly.

Paying your partner for work done

If your partner helps with admin or bookkeeping for your business, paying them a salary that reflects their contribution can be a good idea. It might make use of their personal allowance or basic rate band, and your company gets a deduction for Corporation Tax. 

Do keep in mind though, that you’ll need to run a payroll and file returns with HMRC to keep everything above board.

Dividends and settlements provisions

If your partner is also a shareholder, you might consider paying dividends as part of your overall tax plan – dividends are often tax-efficient, but remember they’re paid from post-tax profits. It’s wise to sit down with your accountant to work out a strategy that suits both you and your partner. 

Just be aware of the ‘settlements provisions’ (sometimes called ‘income shifting’ rules), which HMRC can invoke if they believe you’re moving income around only to avoid tax.

Capital purchases and allowances

Are you thinking of buying a big piece of machinery or kit? It could be worth bringing forward the purchase, so it lands before your company’s year-end and is also brought into use. Right now, you can spend up to £1 million on plant and machinery and claim a 100% capital allowance in the same accounting period, which can make a big difference to your tax bill. 

And make sure you keep an eye on allowances for low-emission cars and energy-saving equipment, because these can change each year.

R&D and patent box relief

If your business does any sort of research and development, or if you have patents, there could be extra tax relief or a reduced rate of Corporation Tax in the mix. These claims can get technical – so do speak with your accountant – but the benefits can be significant so worth looking into.

Next Steps

As always, the best step is to talk everything through with someone who knows your business and personal situation. Everyone’s setup is a little different, and the last thing you want is to pay more tax than you need to or miss out on a saving that could make a real difference.

If you have any questions or want a fresh perspective on your tax strategy, feel free to get in touch – we’re here to help you make confident decisions for the future of your business.