There Are a Number of Ways to Save on Tax Before the End of the Tax Year – What Are They?

As the end of the tax year approaches, now is the perfect time to review your finances and explore ways to reduce your tax liability. Effective tax planning can help you legally minimise the amount you owe while maximising your savings and investments.

Whether you’re employed, self-employed, or an investor, there are several strategies to ensure you make the most of available allowances and reliefs before the deadline.

In this guide, I will walk you through various tax-saving opportunities, from maximising your pension contributions to optimising your ISA allowance. By taking action before the tax year ends, you can protect more of your hard-earned money.

What Are the Best Tax-Saving Strategies Before the Tax Year Ends?

As the tax year draws to a close, taking advantage of available tax-saving opportunities can make a significant difference in your financial planning. Here are five key strategies to consider before 5 April:

1. Maximise Your Pension Contributions

Contributing to a pension is one of the most effective ways to lower your tax bill. Pension contributions receive tax relief at your marginal income tax rate, meaning:

• Basic-rate taxpayers receive 20% tax relief
• Higher-rate taxpayers receive 40% tax relief
• Additional-rate taxpayers receive 45% tax relief

If you haven’t used your full £60,000 annual allowance, you may also be able to carry forward unused allowances from the previous three tax years. Making additional contributions before the tax year ends can significantly reduce your taxable income.

2. Use Your ISA Allowance Before It Resets

ISAs (Individual Savings Accounts) allow you to save and invest tax-free, and the £20,000 annual ISA allowance does not roll over into the next tax year.

• A Cash ISA earns tax-free interest
• A Stocks & Shares ISA allows investments to grow free from capital gains tax
• A Lifetime ISA (LISA) provides a 25% government bonus for first-time homebuyers or retirement savings

By making full use of your ISA allowance before 5 April, you ensure your savings grow tax-efficiently.

3. Reduce Capital Gains Tax Liability

If you’ve made a profit from selling assets such as shares, property, or investments, you could be liable for Capital Gains Tax (CGT). The annual CGT exemption for 2023/24 is £6,000, but this will reduce to £3,000 in 2024/25, so it’s crucial to take action now.

To minimise CGT:

• Use your annual exemption before it resets
• Spread disposals across two tax years to take advantage of multiple allowances
• Transfer assets to a spouse or civil partner to utilise both individuals’ tax-free allowances
• Offset losses against gains to reduce taxable profits

Acting before the tax year ends ensures you maximise your tax-free allowance before it decreases.

4. Make Tax-Efficient Charitable Donations

Donating to charity can reduce your taxable income while supporting a good cause. Under the Gift Aid scheme, charities can reclaim an extra 25p for every £1 you donate, and higher-rate taxpayers can claim additional tax relief.

Tax-saving options include:

• One-off or regular donations under Gift Aid
• Payroll Giving, which deducts donations before tax
• Donating assets such as shares or property, which are exempt from CGT

By making charitable donations before the end of the tax year, you can lower your overall tax bill while benefiting charitable organisations.

5. Plan Your Dividend Income Efficiently

For those receiving dividend income, ensuring you remain within the £1,000 tax-free dividend allowance for 2023/24 can help reduce tax liability. This allowance is set to drop to £500 in 2024/25, making it more important than ever to plan ahead.

To minimise dividend tax:

• Utilise the £1,000 dividend allowance before it reduces
• Split dividend payments between spouses to take advantage of multiple allowances
• Hold dividend-paying shares within an ISA, where they are tax-free

Proper planning before the tax year ends ensures you make the most of available allowances and reduce your tax burden effectively.

6. Claim Tax Relief on Work-Related Expenses

If you are an employee or self-employed, you may be able to claim tax relief on work-related expenses. These can include:

• Uniforms and protective clothing: If you are required to wear a uniform or protective gear for work, you may be eligible for a tax rebate.
• Professional subscriptions: If you pay for memberships in HMRC-approved professional bodies, you may be able to claim tax relief.
• Home office expenses: If you work from home, you may be eligible for a flat-rate deduction or claim actual expenses related to your home office setup.

Submitting claims before the tax year ends ensures that you receive the tax relief for the current financial year.

7. Take Advantage of Marriage Allowance

Marriage Allowance is a tax relief that allows a lower-earning spouse or civil partner to transfer up to £1,260 of their personal allowance to their partner, reducing their overall tax bill. To qualify:

• One partner must be earning below the £12,570 personal allowance threshold.
• The other partner must be a basic-rate taxpayer (earning between £12,570 and £50,270 per year).

By applying before the end of the tax year, couples can claim up to £252 in tax savings for the year.

8. Use the Annual Gift Exemption to Reduce Inheritance Tax

Inheritance Tax (IHT) is charged at 40% on estates valued above £325,000. However, you can reduce the taxable value of your estate by making tax-free gifts before the tax year ends.

• £3,000 annual exemption: You can give away up to £3,000 each year without it being added to your estate.
• Small gift allowance: Gifts of up to £250 per person are tax-free.
• Wedding gifts: You can give tax-free gifts for weddings, up to £5,000 for children, £2,500 for grandchildren, and £1,000 for friends.
• Regular gifts from income: If you regularly give away surplus income without affecting your standard of living, these gifts may also be exempt from IHT.

Making gifts before 5 April ensures you take advantage of these allowances and reduce future inheritance tax liability.

9. Use Salary Sacrifice to Reduce Taxable Income

A salary sacrifice scheme allows employees to exchange part of their salary for non-cash benefits, reducing their taxable income. Common salary sacrifice options include:

• Pension contributions: Reducing salary in exchange for higher employer pension contributions can lead to lower income tax and National Insurance contributions (NICs).
• Cycle-to-work schemes: Employees can purchase a bicycle through salary sacrifice, reducing their tax bill.
• Childcare vouchers (if enrolled before October 2018): Some employees may still benefit from tax-free childcare vouchers.

By opting into salary sacrifice before the tax year ends, you can lower your overall tax bill while receiving valuable benefits.

10. Review and Adjust Your Self-Assessment Tax Payments

If you are self-employed or have additional sources of income, you may be making Payments on Account towards your tax bill. Before the end of the tax year, consider:

• Reviewing your expected income: If your income is lower than anticipated, you may be able to reduce your next tax payment.
• Claiming any available deductions: Ensuring all eligible expenses have been accounted for can lower your taxable income.
• Making additional pension contributions; This can reduce your tax liability and potentially lower your next self-assessment bill.

Checking and adjusting your tax payments before 5 April can help you manage your cash flow and avoid overpaying tax.

How Can Pension Contributions Help Reduce My Tax Bill?

Making pension contributions is an effective way to lower your taxable income while securing your financial future. The UK government provides generous tax relief on pension savings:

• Contributions receive tax relief at your marginal income tax rate:
  • 20% for basic-rate taxpayers
  • 40% for higher-rate taxpayers
  • 45% for additional-rate taxpayers
• The annual allowance for pension contributions is £60,000, or 100% of your earnings, whichever is lower
• Unused annual allowances from the past three tax years can be carried forward, allowing larger contributions in the current tax year

For those in higher tax brackets, increasing pension contributions before the tax year ends can significantly reduce the amount of tax owed. Employer pension contributions through salary sacrifice schemes can also provide National Insurance savings.

Why Should I Maximise My ISA Allowance Before April?

An Individual Savings Account (ISA) allows you to save and invest without paying income tax or capital gains tax on returns. The annual ISA allowance is £20,000, and it does not carry over to the next tax year.

Types of ISAs and their benefits include:

• Cash ISA: Earn tax-free interest on savings
• Stocks & Shares ISA; Invest in stocks, bonds, or funds without paying capital gains tax
• Lifetime ISA (LISA): Receive a 25% government bonus for first-time home purchases or retirement savings
• Innovative Finance ISA: Earn tax-free returns on peer-to-peer lending

Maximising your ISA allowance before the tax year ends ensures that you fully utilise the tax-free growth opportunities available.

Can I Lower My Capital Gains Tax Before the Tax Year Ends?

Capital Gains Tax (CGT) is charged when you sell assets such as property or shares for a profit. The annual CGT exemption is £6,000 for the 2023/24 tax year, meaning gains up to this amount are tax-free.

To reduce CGT liability, consider:

• Using your allowance before 5 April, as it cannot be carried forward
• Spreading disposals over multiple tax years to make use of more than one exemption
• Gifting assets to a spouse or civil partner, which allows both individuals to use their allowances
• Offsetting capital losses against gains, reducing the overall taxable amount

By strategically planning asset sales, you can minimise the amount of CGT owed.

What Are the Benefits of Making Charitable Donations for Tax Savings?

Charitable donations can provide valuable tax relief while supporting good causes. The Gift Aid scheme allows charities to reclaim 25p for every £1 donated, and higher-rate taxpayers can claim additional relief through self-assessment.

Ways to make tax-efficient donations include:

• One-off or regular donations under Gift Aid; Higher-rate taxpayers can reclaim 20% or more in tax relief
• Payroll Giving: Donations deducted before tax reduce taxable income
• Donating shares or property: Gifts to charities are exempt from capital gains tax and can provide income tax relief

Making donations before the tax year ends ensures that the tax relief applies to the current financial year.

Should I Consider Tax-Efficient Investments?

Investing in tax-efficient schemes can reduce your tax bill while offering potential growth. Some of the most common options include:

• Venture Capital Trusts (VCTs): Offer 30% income tax relief on investments up to £200,000
• Enterprise Investment Schemes (EIS): Provide 30% income tax relief and defer capital gains tax
• Seed Enterprise Investment Schemes (SEIS): Offer 50% income tax relief on investments up to £100,000

These investment schemes come with risks, but they can be beneficial for high earners looking to optimise their tax position.

How Can I Reduce Dividend Tax Before the New Tax Year?

The dividend allowance for the 2023/24 tax year is £1,000, meaning any dividend income above this amount is taxable. Dividend tax rates are:

• 8.75% for basic-rate taxpayers
• 33.75% for higher-rate taxpayers
• 39.35% for additional-rate taxpayers

To reduce dividend tax liability:

• Ensure you use your £1,000 dividend allowance before the tax year ends
• Spread dividends between spouses to utilise multiple allowances
• Hold dividend-generating investments in an ISA to benefit from tax-free income

Business owners may also consider adjusting salary and dividend payments to optimise their tax position.

What Tax Reliefs Are Available for Self-Employed Individuals?

Self-employed individuals can claim tax relief on various business expenses, reducing their taxable profit. Allowable expenses include:

• Office costs: Rent, utilities, and equipment
• Travel expenses: Business-related mileage, train fares, and accommodation
• Marketing and advertising: Website costs, online ads, and printed materials
• Professional fees: Accountancy and legal expenses
• Work-from-home expenses: A portion of household bills if working from home

Using simplified expenses allows self-employed individuals to claim a flat rate for some costs instead of calculating exact expenses. Keeping accurate records ensures that all allowable deductions are claimed before submitting a tax return.

How Does Inheritance Tax Planning Help Save Money?

Inheritance tax (IHT) is charged at 40% on estates valued above £325,000. However, with effective planning, you can reduce the amount of tax owed. Strategies include:

• Using the £3,000 annual gift exemption, which allows tax-free gifts each tax year
• Making small gifts of up to £250 per person, which do not count towards the exemption
• Gifting money for weddings, with limits of £5,000 for children, £2,500 for grandchildren, and £1,000 for others
• Setting up trusts, which can help pass on wealth without incurring IHT
• Leaving at least 10% of your estate to charity, which reduces the IHT rate to 36%

By making tax-efficient gifts before the tax year ends, you can lower the taxable value of your estate.

Are There Any National Insurance Savings I Should Be Aware Of?

National Insurance (NI) contributions can add up, but there are ways to reduce them:

• Salary sacrifice schemes: Contributing to pensions, childcare vouchers, or cycle-to-work schemes can lower NI contributions
• Deferring NI payments: If you have multiple jobs or self-employment income, you may qualify for reduced NI payments
• Making voluntary NI contributions: Ensuring you have enough qualifying years for a full State Pension

For employees, adjusting salary structures before the end of the tax year can help reduce unnecessary NI payments.

By reviewing these tax-saving opportunities before 5 April, individuals can optimise their finances and reduce tax liabilities effectively.

Conclusion

As the tax year draws to a close, taking advantage of available tax-saving opportunities can make a significant difference in your finances.

From maximising pension contributions and ISA allowances to strategic capital gains planning, every step you take now can help you save on tax.

Review your financial situation, act before the deadline, and consult a financial adviser if needed to ensure you make the most of the available tax reliefs.

FAQs

What is the deadline for tax-saving actions in the UK?

The UK tax year ends on 5 April each year, so you must take action before this date.

Can I carry forward unused pension allowances?

Yes, you can carry forward unused pension allowances from the past three tax years, provided you were a member of a registered pension scheme during those years.

How does the dividend allowance work?

For the 2023/24 tax year, the dividend allowance is £1,000, meaning you don’t pay tax on dividend income up to this amount.

Is it better to invest in ISAs or pensions for tax efficiency?

Both have tax advantages: ISAs provide tax-free withdrawals, while pensions offer tax relief on contributions. The best option depends on your financial goals.

How can I use capital losses to reduce my tax bill?

You can offset capital losses against capital gains, reducing the taxable amount. Unused losses can be carried forward to future years.

Are there limits to how much I can donate to charity for tax relief?

There’s no limit, but you must ensure you’ve paid enough tax to cover the Gift Aid reclaimed by the charity.

What happens if I don’t use my annual allowances before the tax year ends?

Most allowances, such as ISAs and CGT exemptions, do not roll over, meaning you’ll lose them if you don’t use them before 5 April.