Top Tips to Save Tax Before 6 April!
As the tax year closes on Saturday 5 April, we’ve outlined some top tips on how to get you where you need to be, so that you and your finances can thrive in the 2025 – 2026 tax year!
- 2020/21 tax year – this is your last chance to claim your professional expenses for this period!
- ISAs – everyone has a £20,000 a year allowance to put into ISAs, and this resets on 6 April so make sure, if you can, to maximise using this allowance. You can use cash ISAs or stocks and shares ISAs and up to £4,000 of the £20,000 allowance can also be invested in a Lifetime ISA, if applicable. Any income from interest or dividends will be tax-free if within an ISA; and any capital gains in an ISA will be free from Capital Gains Tax.
- Transfer of assets – you can transfer from one spouse (or civil partner) to the other with no Capital Gains Tax or Inheritance Tax consequences. If one spouse pays income tax at a lower tax rate than the other, is there scope to transfer any income generating assets such that the income generated is taxed at a lower rate? If you do have assets generating taxable interest, dividends or capital gains (e.g. those not already inside an ISA), then tax savings can be had if the lower taxed spouse pays tax on the income instead of the higher taxed spouse.
- Adjusted net income – if your taxable income (this would include any employment income after your NHS pension and professional expenses, less grossed up Gift Aid contributions and Personal Pension Contributions) exceeds £100,000, you start to lose your personal allowance resulting in a marginal tax rate of 60%, or 67.5% in Scotland. You also lose any tax-free childcare if you are claiming this as soon as you go over £100,000.
- Pension – NHS staff have finally received pay uplifts. However, the pensions annual allowance will impact a lot more senior doctors in the 2024-25 tax year. If your income from all sources less pension contributions is going to be over £200,000, then you may have a tapered annual allowance. With time running out, there may not be a lot that can be done, but for anyone close to the £200,000 level, it may be worth checking your numbers and discussing strategy options with your accountant/financial advisor.
- CGT allowance – in the 2024-25 tax year, the CGT tax-free Annual Allowance is £3,000 (cut from £6,000 last tax year). If you have any shares sitting at a capital gain that will be subject to CGT, that you intend to sell, then consider selling some of the shares before 6 April 2025 and some after, to use the 2024/25 Annual Allowance before you lose it. Of course this may not be easy to do, many assets are not liable to CGT anyway (including shares in ISAs) and you should only sell an asset if you want or need to (not because of tax), but it is something to think about and take further advice on if needed.
- Inheritance tax – if you are at the stage where you are considering the inheritance tax liabilities that your loved ones may pay when you pass away, make sure you utilise your yearly annual exemption of £3,000. You can also use the annual exemption from the tax year before if not already used.
- National insurance contributions – don’t forget you need a minimum of 35 years of National Insurance contributions to get the full new state pension payment. If a taxpayer does not have enough full years of NI contributions, this will likely affect their state pension. Usually you can only go back 6 tax years to make voluntary contributions to fill any gaps in your record. However, the government is currently allowing people to make voluntary contributions for any gaps they may have all the way back to 6 April 2006. You can make a voluntary contribution of £15.85 per week which is basically £824.20 to make the year a qualifying one and should add 1/35th to your state pension. From 6 April 2025 the timeframe for making voluntary contributions will revert to the usual 6 years, so it will only be possible to go back to the 2019/20 tax year or after; the rate of payment will increase to £17.45 per year or just over £900 to fill a year. You may therefore want to check your State Pension Record for any gaps – if there are any, you may then wish to consider whether or not it would be beneficial to make a voluntary contribution before this tax year ends.
If you missed our previous webinar: ‘Preparing for the 2025 Tax Year: Financial Tips for UK Doctors’, you can request a FREE copy of our e-brochure with a recording link, by simply emailing us at: info@designatedmedical.com
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