QUESTION: With three months to go to the tax year end and in light of the autumn Budget, what should my new year tax resolution be to be tax efficient?
ANSWER: The UK income tax year ends on April 5, and you still have time to mitigate your 2025 tax liability via tax planning to ensure all available reliefs are utilised.
The 2024 Budget was a major financial statement and contained many significant tax changes of which only the capital gains tax (CGT) rate was changed overnight with the other changes due to be implemented in the future with changes planned at April 2025, 2026 and 2027 so there is time to undertake effective planning now.
The special CGT rate of 10% available to entrepreneurs on the first £1 million of gains arising on the sale of their business will end on April 6 2025 and the rate will be increased to 14%.
Many taxpayers are contemplating a sale now to avail of this lower rate especially those who sold business assets within a company and were waiting for a new opportunity. A lot of these taxpayers are undertaking a voluntary liquidation of their company to cash in at 10%.
A major and controversial budget change was the halving of Business and Agricultural relief from April 2026 albeit a £1m per person allowance was created.
If you own a business or farm which is valued at over £3m you need to give serious consideration to transferring enough of the business/farm to your children to only leave £3m in charge at the time of your death.
You have to survive the transfer by seven years to avoid an inheritance tax charge (unless you die before April 2026), but it is better to start the seven-year clocking ticking sooner rather than later.
Seven years seems like a lifetime away but remember the Covid pandemic started five years ago and that seems like yesterday!
The CGT on the transfer can be held over (avoided). Parents wary of an outright transfer should consider transferring the assets into a trust where the seven-year clock starts on transfer however as trustees, the parents have control over the assets until they are happy to appoint them out of trust to the beneficiaries.
The Budget brought pension pots into charge for inheritance tax from April 2027 although the detail of this will be the subject of a lot of consultation and probably change between now and then.
Generally, an individual is entitled to make £60,000 pension contributions each year. Any unused pension allowance from the previous three years can increase this amount.
When an individual’s income exceeds £100,000, their personal allowance is reduced by £1 for every £2 over £100,000. This phased reduction of the personal allowance means that income between £100,000 and £125,140 is effectively taxed at a rate of 60%.
If you can opt for a pension contribution instead of a bonus to restrict earnings below £100,000 this would save you a lot of tax this year so review your likely total earnings including bonus payments now and if needs be, take a smaller bonus in lieu of an employers pension contribution.
- Paddy Harty (paddy.harty@aabgroup.com) is tax partner at AAB Group Accountants Ltd (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
