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The 2024/25 tax year will begin on 6 April 2024.
While not much may change in your day-to-day life when midnight strikes on 5 April, this new chapter may offer fresh financial opportunities, and perhaps some pitfalls too, that you may wish to plan for as the previous tax year comes to a close.
Whether you’re already in retirement, on course to retire soon, or still in your peak career years, these four quick finance tips could help you start the 2024/25 tax year on the right foot.
1. Consider the benefits of early investment
Investing within tax-efficient vehicles, such as an Individual Savings Account (ISA) or personal pension pot, is often considered a beneficial long-term wealth strategy.
It may sound like common sense, but many people forget that investing early in the tax year could mean your overall returns for that year are higher than if you did so at the end of the year.
Last year, we published in-depth insights on the difference between investing within a Stocks and Shares ISA at the beginning of the tax year versus at the end – and indeed, this strategy could potentially earn you several thousands of pounds in tax-efficient returns over the long term.
So, as the new tax year opens up fresh investment opportunities, it may be wise to consider maximising your investments as early as possible.
2. Check if important tax allowances or thresholds have changed
Although chancellor Jeremy Hunt announced another 2% cut to National Insurance in his Spring Budget, there are several key tax allowances and exemptions remaining frozen, or reducing, when 2024/25 begins.
Here are some important tax thresholds to keep in mind during your year-end tax planning:
The Capital Gains Tax (CGT) annual exempt amount will decrease from £6,000 to £3,000, having already fallen from £12,300 at the start of the 2023/24 tax year. If you pay CGT on the sale of a second home, another valuable asset, or shares held outside of an ISA, only £3,000 of your profits may be considered tax-free.
The Dividend Allowance will fall from £1,000 to £500, after the government reduced it from £2,000 in April 2023. If you earn dividends as part of your remuneration, from investments, or from other business interests, you’ll only be able to earn £500 tax-free in 2024/25.
The Inheritance Tax (IHT) nil-rate bands are frozen until 2028. The nil-rate band and residence nil-rate band, which stand at £325,000 and £175,000 respectively, will not rise in line with inflation, meaning that a larger portion of your estate could be subject to this tax if you pass away in the coming years.
Several Income Tax thresholds are frozen, including the Income Tax Personal Allowance, which will remain at £12,570.
Knowing where you stand with regards to these tax-efficient allowances and thresholds is extremely important, especially as the new tax year begins. By staying up to date with any changes that the government are introducing on 6 April, you can more effectively anticipate your tax burden and take steps to mitigate this from the outset.
3. Make the most of the State Pension triple lock
If you are already receiving the State Pension, or are set to claim it this year, remember that the government has applied the triple lock, meaning your payments may increase.
The triple lock increases the State Pension by whichever is highest of average earnings growth, CPI inflation, or 2.5%, year on year.
This year, this was average earnings growth, rising by 8.5%. This will bring the maximum weekly new State Pension payment from £203.85 a week to £221.20 a week. Annually, this brings the full State Pension from a little more than £10,600 to around £11,500.
As such, you may want to factor this increase into your budget for the year. Remember that the State Pension is subject to Income Tax along with withdrawals from your private pensions, so it could help to discuss any changes to your tax burden with a financial planner.
If you have not retired yet however wish to ensure you are eligible for the maximum State Pension, you can normally pay voluntary National Insurance contributions (NICs) for the previous six tax years. You can also pay voluntary NICs for the years between 2016 and 2018 up until the government’s deadline on 5 April 2025.
Whether you are already retired or approaching retirement, checking in on changes to the State Pension at the start of each tax year could help you make accurate plans for the future and offer advantages in additional State Pension income.
4. Set clear-cut goals for the year ahead
Thinking about what you want to achieve with your wealth and setting financial goals for the year ahead can help you manage your money more effectively. It can refine your focus and support you to make decisions with your biggest life priorities at the centre.
So, you could use the start of a new tax year to reassess your current goals, as well as set new ones for the year ahead. These could be short-term ambitions for the next year alone; maybe you are aiming to make a certain luxury purchase or reach a specific financial goal, such as paying off a mortgage.
Alternatively, they could be in the medium term of the next 5 to 10 years. For example, perhaps you’re thinking about when you want to retire and how you want to organise your wealth now so that you can finish working by a certain age.
Or, you might have an eye on the long term, thinking about how you want to use the wealth you’ve accumulated throughout your career to reach certain goals in retirement, such as travelling or supporting the next generation with financial gifts.
Whatever your personal goals are, factoring them into your financial decisions now could help you achieve them later down the line. The new tax year presents a great opportunity to think about how you can save, invest, and organise your wealth to keep you on track towards reaching your objectives.
Contact Atherton York to find out how bespoke financial planning could benefit you
If you’d like support managing your wealth this year from an experienced financial planner, please do get in touch with us at Atherton York.
Email info@athertonyork.co.uk or call us on 0208 882 2979 for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.