As we enter a new financial year, tax year planning becomes an essential part of getting your finances in order.
Whether you’re self-employed, employed, or managing multiple income streams, understanding what allowances are available – and how to use them – can make a huge difference. From ISAs and pensions to dividend income and capital gains, here’s how to approach the new tax year with confidence and clarity.
1. Make the Most of Your Tax-Free Allowances
One of the first steps in effective tax year planning is knowing what you can earn or invest tax-free. These allowances may seem small on paper, but when used wisely, they add up – especially over time.
- Personal Allowance
The personal allowance remains at £12,570. This means you can earn up to this amount without paying any income tax. If you have more than one income source (for example, a part-time job and a side hustle), it’s worth speaking to an accountant to ensure your tax code is set up correctly and you’re not overpaying. - ISA Allowance
You can invest up to £20,000 into ISAs this year. The beauty of an ISA is that any interest, dividends or capital gains you earn within it are completely tax-free. Using your ISA allowance early in the year allows your savings or investments more time to grow. - Dividend Allowance
The dividend allowance has been cut again and now sits at just £500. If you’re a company director or investor who relies on dividend income, this change might sting. Now’s the time to look at how your income is structured and see if it still makes sense under the new rules.
2. Optimise Pension Contributions
Pensions are not just about saving for the future – they’re also a clever way to reduce your taxable income today. If you’re thinking ahead with your tax year planning, pensions deserve your attention.
- Annual Allowance
You can contribute up to £60,000 to your pension this year, though for high earners (those with an adjusted income over £260,000), this figure may be tapered down. - Carry Forward Unused Allowances
Didn’t use up all your pension allowance over the past few years? You might be able to carry forward unused allowances from the last three years. This is particularly useful if you’re expecting a high-income year and want to offset some of your tax liability. - Employer Contributions
If you’re employed and your employer offers pension contributions, take full advantage. These contributions are tax-efficient and can significantly boost your retirement pot.
3. Prepare for Capital Gains Tax (CGT) Changes
Another crucial part of tax year planning involves how you manage assets like shares, property, or other investments that may incur capital gains tax when sold.
- Lower CGT Allowance
The CGT annual exemption is now just £3,000, down from previous years. This means that gains above this amount may be subject to tax, so planning ahead is more important than ever. - Transferring Between Spouses
If you’re married or in a civil partnership, consider transferring assets between each other before selling. This can effectively double your allowance and reduce your tax bill. - Use of Tax-Efficient Wrappers
To reduce your exposure to CGT, consider investing through ISAs or pensions, which offer tax-free growth. This is especially relevant for anyone managing a larger portfolio and wanting to shelter future gains.
Smart Moves for the Year Ahead
Good tax year planning isn’t about doing everything at once – it’s about making small, strategic decisions throughout the year. Think of it as laying the groundwork for stronger, more resilient finances.
Start by reviewing your current position:
✔ Are you using your ISA and pension allowances?
✔ Is your income structured in the most tax-efficient way?
✔ Are there assets you’re planning to sell that need CGT consideration?
✔ Do you need to speak to a financial adviser or accountant?
Even if the answers aren’t clear yet, simply asking these questions puts you ahead of the game.
Final Thoughts
With a few careful steps, this year’s tax year planning can help you save money, grow your wealth, and feel more in control of your financial future.
From using your tax-free allowances to making smart pension contributions and planning for capital gains, every action you take adds up.
The start of the tax year is the perfect time to get ahead – not just to meet obligations, but to build something stronger for the years to come.
| If you’d like support with your tax year planning or have questions about making the most of your allowances, get in touch with our team today. |
