The current tax year ends in just five weeks.
With the recent changes to capital gains tax—where rates on investment gains have increased from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers—it’s more important than ever to be tax-efficient. Now is the time to make the most of available allowances, reliefs, and exemptions.
Here are five key tax planning strategies to consider before the April 5th deadline:
1. ISA Allowances
ISAs are among the easiest and most tax-efficient ways to save and invest. Any interest, dividends, or investment growth within an ISA is completely tax-free, making them a valuable tool for financial planning. Unlike pension savings, ISA funds remain accessible anytime, rather than being locked away until the Minimum Pension Age (currently 55 but set to rise to 57 by 2028).
The annual ISA allowance stands at £20,000 per person for the 2024/25 tax year. For couples, this means a combined allowance of £40,000.
You can split your allowance across different types of ISAs, including:
- Cash ISA – Ideal for emergency savings or short-term goals.
- Stocks & Shares ISA – Designed for medium to long-term investments (we usually recommend at least five years).
- Lifetime ISA – Helps first-time buyers or those saving for retirement, with a £4,000 annual limit and a 25% government bonus.
- Junior ISA – Available for children under 18, allowing up to £9,000 per year in tax-free savings.
Unlike some other allowances, any unused ISA allowance cannot be carried over to the next tax year—so it’s a case of ‘use it or lose it’ before the deadline.
Please note that your capital is at risk when investing. The value of your investment (and any income from it) can go down and up, and you may get back less than you invested, particularly when investing for a short timeframe. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and fit in with your overall attitude to risk and financial circumstances.
2. Pension Contributions
Pensions remain one of the most tax-efficient ways to save, especially for higher and additional rate taxpayers who benefit from upfront tax relief.
While the Government has announced plans to bring pension assets within the scope of Inheritance Tax (IHT) from April 2027—reducing their effectiveness as an estate planning tool—pensions are still a powerful way to fund retirement. The focus should be on building a pension pot during your working life and then drawing from it in retirement.
How much can you contribute?
Your annual pension contributions are limited to the lower of:
- Your ‘relevant UK earnings’ – Typically any work-related income (employed or self-employed), with a minimum contribution allowance of £3,600.
- Your available annual allowance – This is generally £60,000 for the 2024/25 tax year, though this is reduced for those with an adjusted income over £260,000. Unused allowances from the past three tax years can also be carried forward.
Key benefits of pension contributions:
- Tax relief at your marginal rate (20%, 40%, or 45%).
- Tax-free growth within the pension.
- 25% tax-free lump sum at retirement (capped at £268,275).
Why pensions are particularly valuable for high earners
Pension contributions can be especially effective for those earning between £100,000 and £125,140, where the gradual loss of the tax-free personal allowance creates a 60% effective tax rate. In this scenario, a pension contribution provides outstanding tax efficiency by reclaiming some or all of that personal allowance, resulting in an effective 60% tax relief (i.e., a £ 100 pension contribution effectively costs just £40).
By maximising pension contributions before the tax year-end, you can reduce your tax bill while boosting your long-term retirement savings.
Please note a pension is a long-term investment and funds are not normally accessible until 55 (rising to 57 from April 2028). When investing via a pension, your capital is at risk. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates when you take your benefits.
3. Realise Capital Gains
The Capital Gains Tax (CGT) allowance (aka. The ‘Annual Exempt Amount’) has been cut significantly in recent years and is now just £3,000 per person for the 2024/25 tax year.
Following the October 2024 Budget, CGT rates have also increased sharply:
- Basic rate taxpayers now pay 18% on gains (previously 10%) – an 80% increase.
- Higher and additional rate taxpayers now pay 24% (previously 20%) – a 20% increase.
With these higher rates, managing your investments tax-efficiently is more important than ever. Since the government is increasingly targeting investment gains for tax revenue, maximising your annual allowance and using tax-efficient strategies is essential.
Tax-efficient ways to reduce your CGT bill
If you hold investments outside of tax-efficient accounts (such as ISAs or pensions), you might consider the following strategies:
- Sell investments with gains up to your £3,000 exemption to avoid tax.
- Transfer assets between spouses to use both allowances (£6,000 total).
- Use 'Bed and ISA' or 'Bed and Pension' transactions to move investments into a tax-free account.
A practical example
If you have investments in a General Investment Account with £3,000 in gains, you could sell them before 5th April and reinvest the proceeds into an ISA. This effectively locks in the gain tax-free while improving the long-term tax efficiency of your portfolio.
4. Use Gifting Allowances
Many people overlook Inheritance Tax (IHT) planning, but using your annual gifting exemptions can help gradually reduce the value of your taxable estate.
Each tax year, you can gift the following amounts completely free of IHT (and with no seven-year rule):
- £3,000 per person (you can also carry forward any unused allowance from the previous year).
- Smaller gifts of up to £250 to as many people as you like (as long as they haven’t received part of your £3,000 exemption).
- Regular gifts from surplus income provided they are part of a consistent pattern and don’t affect your standard of living. This was the topic of last week’s blog.
For a married couple who haven’t used last year’s exemption, up to £12,000 could be immediately gifted, completely tax-free.
By using these allowances each year, you can significantly reduce your estate’s exposure to Inheritance Tax over time.
5. Consider VCT Investment
For sophisticated investors with higher risk tolerance who have already maximised ISA and pension contributions, Venture Capital Trusts (VCTs) offer attractive tax benefits:
- 30% income tax relief on investments up to £200,000 per tax year (assuming you have sufficient income tax liability to offset)
- Tax-free dividends - typically the main source of return on underlying company exits
- Tax-free capital gains when the VCT is sold
VCTs invest in small, early-stage companies with high growth potential. In exchange for the tax incentives, you'll need to hold the investment for at least five years to retain the initial income tax relief.
It's crucial to understand that VCTs are high-risk investments and not suitable for everyone. We typically only recommend them to investors who:
- Have already used their full ISA and pension allowances.
- Earn enough to benefit from the tax relief.
- Understand and are comfortable with the risks involved.
With recent cuts to tax allowances and changes in the October 2024 Budget, interest in VCTs has grown. However, they remain a specialist investment tool rather than a mainstream solution, best suited for those with a long-term outlook and a higher risk appetite.
Please note that the Financial Conduct Authority does not regulate tax advice. Levels, bases, and reliefs from taxation may be subject to change, and their value depends on the investor's individual circumstances.
Venture Capital Trusts ‘VCTs’ are high-risk products and not suitable for the majority of retail investors.
Conclusion
While tax shouldn't be the primary driver of investment decisions, taking advantage of available allowances and exemptions before tax year-end can lead to significant long-term benefits.
Each person's circumstances are unique, so it's always worth consulting a financial planner to ensure any tax planning strategies align with your broader financial goals and objectives.
If you'd like to discuss any of these strategies in more detail, please get in touch.
Happy Thursday!
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Important Disclaimer
This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.
