As we approach the final financial quarter, now’s a good time to focus on your year-end tax planning. Make use of your pensions and savings allowances and check that you’re up to date with your National Insurance contributions. The cut off for State Pension back payments is 5 April 2025, and you can currently go back to 2006 to fill any gaps. After this date, you will only be able to go back 6 years, so it’s worth making this a top priority.
In this blog, we look at some of the ways you can make your year-end financial planning more tax efficient. Due to the forthcoming deadline for backdated State Pension payments, let’s start with National Insurance contributions (NICs).
Deadline for State Pension boost: 5 April 2025
To be eligible for your full State Pension, you need to have made a certain number of NICs, which is normally 35 years. If you have any gaps, this could result in you missing out on future State Pension income. Usually, people have gaps when they have taken time off due to unemployment, working abroad, or childcare.
The government extended the deadline for those who wanted to make voluntary NICs to fill any gaps. It’s estimated that many people could be thousands of pounds better off by voluntarily replacing any missing NICs.
When National Insurance contributions have been topped up, this should enable you to become eligible for the full State Pension. However, paying voluntary NICs might not be right for everybody. For some people, there might be a good reason why they have gaps. So, it’s important to check how your State Pension will be affected if this situation applies to you.
In some cases, where National Insurance records began before April 2016, some people may have been ‘contracted out’. This is when an employer pays more into a workplace or private pension and less into your State Pension. For more information, read our previous blog, How do I find out if I have underpaid my State Pension?
Check your state pension forecast here: https://www.gov.uk/check-state-pension
Add more contributions to private pensions
UK taxpayers usually get tax relief on their private or personal pension contributions, which is based on the rate of income tax. So, when a basic rate taxpayer pays £80 into their pension, the government pays £20 in tax relief. The amount of tax relief varies, and there can be additional tax advantages if you’re a higher or additional rate taxpayer.
Remember to keep an eye on the annual allowance, which is how much you can save in your private/personal pension during the financial year. This annual allowance will relate to your particular circumstances. Please speak to our financial planners for pension advice.
Utilise your personal savings allowance
Everybody in the UK gets a tax-free personal savings allowance, which applies to the interest earned on your savings. This is £1,000 for basic rate taxpayers or £500 if you’re a higher rate taxpayer (there is no personal savings allowance for additional rate taxpayers).
It’s worth noting there are other personal savings allowances available. So, it’s worth checking the tax on savings interest via the Gov.uk website to see if you are eligible for any others.
Use your Capital Gains Tax exemptions
As you can’t carry forward any unused Capital Gains Tax (CGT) exemptions, it’s worth using this year’s allowance against any taxable gains. The current tax-free exemption is £3,000 per year. Basic rate taxpayers pay a rate of 18% CGT on property and 10% on other assets such as shares. Higher or additional rate taxpayers pay 24% on property and 18% on other assets.
Make use of dividend allowances
If you receive dividends, the tax-free allowance for the current financial year is £500. You will pay tax on dividends above this threshold which varies depending on your tax band. For basic rate taxpayers this is 8.75%, higher rate is 33.75%, and additional rate is 39.35%.
Top up your ISAs
Make use of your tax-free ISA (Individual Savings Account) allowance. Currently, this is £20,000 for most types of ISA. Lifetime ISAs have an allowance of £4,000 per year, but this still counts towards the £20,000 threshold. The Junior ISA annual limit is £9,000 per year.
Check your investment portfolio
Make sure you are making the most of your investments. Some investments receive tax relief, and a more diverse portfolio often generates better returns. Review your current strategy and performance. A well-diversified portfolio will be more resilient to market volatility, and you could also consider responsible investing options.
Savings, investments and pension advice, West Bridgford
Although now’s a good time to focus on year-end tax planning, don’t forget to check your State Pension contributions. Make use of all available tax-free allowances. Create a financial forecast to check that you have enough pension income and savings to last you throughout retirement. A realistic financial plan will help to ensure your financial security in the future.
At Balance: Wealth, our financial planners can provide you with a Lifetime Wealth Forecast to give you peace of mind when it comes to your financial planning. We will review your pensions and savings, and we’ll also carry out a cash-flow planning exercise. Your forecast will help you plan for a more tax-efficient lifestyle both in the short term and long term.
For a more tax-efficient approach to year-end planning, get in touch to speak to our financial planners.
Sources:
https://www.royallondon.com/guides-tools/money-guides/tax-guides/tax-year-end/
https://www.taxassist.co.uk/resources/articles/10-year-end-tax-planning-tips-for-individuals
https://www.gov.uk/apply-tax-free-interest-on-savings
https://www.gov.uk/voluntary-national-insurance-contributions/deadlines
https://www.gov.uk/apply-tax-free-interest-on-savings
https://www.gov.uk/tax-on-dividends
