As another tax year comes to an on 5 April 2025, Ed (a GP but also a chartered accountant and chartered tax adviser) goes through some things to think about ASAP before this happens:
- Claim a tax rebate for 2020/2021 before you lose it
Make sure you have claimed a tax rebate for the 2020-21. You can claim tax relief on your professional expenses for the current tax year and the previous four tax years. Currently you can claim for all expenses from 6 April 2020. However, once we reach 6 April 2025 you will lose the ability to make a claim for any allowable employment expenses incurred between 6 April 2020 and 5 April 2021.
So if you did incur such expenses and have not made a claim then don’t miss out – make that claim asap! You can use the Medics’ Money free step by step guide to do this and can find it here: https://www.medicsmoney.co.uk/free-guide/
Note the guide changed twice as HMRC changed their rules so make sure you have the latest version!
- Maximise your ISA allowance (if you can!)
Maximise your ISA allowance if you can. Don’t forget you can save up to £20,000 each tax year in ISAs which can be cash ISAs or stocks and shares ISAs and up to £4,000 of the £20,000 allowance can also be invested in a Lifetime ISA if applicable (see below).
Any income from interest or dividends will be tax free if within an ISA; and any capital gains in an ISA will be free from Capital Gains Tax. With recent reductions in the tax-free dividend allowance and the tax-free allowance for Capital Gains Tax it is even more important to use ISAs as tax free wrappers where you can. You have until 5 April 2025 to use what you can of the £20,000 ISA allowance for 2024/2025. From 6 April 2025 a new £20,000 allowance will be available.
And don’t forget the Lifetime ISA or ISA – the Government will pay 25 pence for every £1 you put into your LISA up to a maximum of £1,000 if you put £4,000 in. If you turn 40 this year, make sure you set up a LISA if you want to do so – by the time you reach your 40th birthday you lose the opportunity.
Why not listen to this podcast to get more information on ISAs: https://www.medicsmoney.co.uk/ep-224-isas-have-changed-heres-what-you-need-to-know/
We should add that the above is correct at the time of writing – there has been talk of upcoming changes to the ISA regime (both cash ISAs and LISAs may be affected) – so watch this space!
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- Consider Junior ISAs (JISAs).
Up to £9,000 can be invested each tax year into a Junior ISA for an individual under the age of 18. Note this will not impact your £20,000 allowance. Anyone can contribute into a Junior ISA (Cash or Stocks and Shares Junior ISAs) – though only a parent/guardian can set one up and manage it – and withdrawals can be made from the age of 18.
- Should you transfer assets to your spouse or civil partner?
Is there scope for transfers to a lower paid spouse or civil partner? You can transfer assets from one spouse (or civil partner) to the other with no Capital Gains Tax or Inheritance Tax consequences. If one spouse pays income tax at a lower tax rate than the other, is there scope to transfer any income generating assets such that the income generated is taxed at a lower rate? If you do have assets generating taxable interest, dividends or capital gains (e.g. those not already inside an ISA) then tax savings can be had if the lower taxed spouse pays tax on the income instead of the higher taxed spouse.
- Make sure you know your Adjusted Net Income!
Consider your Adjusted Net Income for the tax year and the impact on your marginal rate of taxation. Is your Adjusted Net Income (essentially your taxable income (this would include any employment income after your NHS pension and professional expenses) less grossed up Gift Aid contributions and Personal Pension Contributions) exceeds £100,000 you start to lose your personal allowance resulting a marginal tax rate of 60%, or 67.5% in Scotland, in what is known as the marginal rate tax trap. You also lose any tax-free childcare if you are claiming this as soon as you go a penny over £100,000. What is your adjusted net income? Are you getting close to £100,000 or just above it? If so consider this carefully and if you can / want to do something about it. For more on the marginal tax trap and how to avoid it, check out this blog: https://www.medicsmoney.co.uk/how-nhs-doctors-can-avoid-the-60-tax-trap/
- Consider the impact of pay uplifts on the pensions’ Annual Allowance
With recent pay uplifts the pensions annual allowance will impact a lot more senior doctors in the 2024-25 tax year. If your income from all sources less pension contributions is going to be over £200,000 then you may have a tapered annual allowance. With time running out there may not be a lot that can be done but for anyone close to the £200,000 level it may be worth checking your numbers and discussing strategy options with your accountant / financial advisor.
- Utilise the Capital Gains Tax (CGT) Annual Allowance if applicable
In the 2024-25 tax year, the CGT tax free Annual Allowance is £3,000 (cut from £6,000 last tax year). If you have any shares sitting at a capital gain that will be subject to CGT, that you intend to sell, then consider selling some of the shares before 6 April 2025 and some after to use the 2024/25 Annual Allowance before you lose it. Of course this may not be easy to do, many assets are not liable to CGT anyway (including shares in ISAs) and you should only sell an asset if you want or need to (not because of tax) but it is something to think about.
- The Inheritance Tax Annual Exemption
If you are at the stage where you are considering the Inheritance Tax liabilities that your loved ones may pay when you pass away, make sure you utilise your yearly annual exemption of £3,000. You can also use the Annual Exemption from the tax year before if not already used. You can find out more on Inheritance Tax here:
- Check your State Pension Record:
You need a minimum of 35 years of National Insurance (“NI”) contributions to get the full new state pension payment. If a taxpayer does not have enough full years of NI contributions this will likely affect their state pension. Usually you can only go back 6 tax years to make voluntary contributions to fill any gaps in your record. However, the government are currently allowing people to make voluntary contributions for any gaps they may have all the way back to 6 April 2006. You can make a voluntary contribution of £15.85 per week which is basically £824.20 to make the year a qualifying one and should add 1/35th to your state pension.
From 6 April 2025 the timeframe for making voluntary contributions will revert to the usual 6 years so it will only be possible to go back to the 2019/20 tax year or after; the rate of payment will increase to £17.45 per year or just over £900 to fill a year.
You may therefore want to check your State Pension Record for any gaps – if there are any you may then wish to consider whether or not it would be beneficial to make a voluntary contribution before this tax year ends.
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