The end of the tax year is fast approaching, making it an ideal time to remind everyone about important steps for year-end tax planning.
Before we proceed, let’s take a moment to review the changes that will be happening in the next couple of years.
During the last Budget, a few changes were announced that you should now be mindful of:
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Increase in Employer’s National Insurance (NIC)
Increase in the employers’ NICs rate, from 13.8% to 15% but at the same time decreasing the threshold from £9,100 to £5,000
While the employment allowance has doubled from £5,000 to £10,000, the above change will impact many employers.
If you are unsure how the figures will look for you, please get in touch. We can do the calculations for you.
This will also alter the remuneration planning between salary and dividends if you run an owner-managed company. Again, you should get in touch with us to discuss your case.
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Changes to Capital Gains Tax Rates (CGT)
The rates of CGT for all investments were harmonised, so there are effectively two rates now – 18% if you are a basic-rate taxpayer and 24% if you are a higher-rate taxpayer.
If you sell your business, you will still be entitled to Business Asset Disposal Relief. However, the rate will increase from 10% to 14% in 2026, and then to 18% afterwards. This is an important consideration if you plan to retire in the next couple of years.
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Extra 2% surcharge for Stamp Duty (SDLT) for second properties
The higher rates of Stamp Duty Land Tax (SDLT) for purchasers of ‘additional dwellings’ meaning those who already own one property—and for companies have increased from 3% to 5% above the standard residential rates.
This change took effect on the day after the Budget announcement, which was 31 October 2024.
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Changes to Inheritance Tax
Starting in April 2027, most undrawn pension funds and death benefits will be included in the total value of a person’s estate for inheritance tax purposes. This is a huge change and something you need to evaluate with the professionals.
IHT agricultural property relief (APR) and business property relief (BPR) will change from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets with no financial limit.
From 6 April 2026, it is proposed that 100% relief will only apply to the first £1 million
How can you reduce your tax liabilities?
We recommend that if any of the above applies to you, please consult your Accountant.
To optimise your year-end tax planning, you should also consider these simple steps. This list is not exhaustive but provides useful pointers:
- Maximise your pension contributions to make full use of tax relief.
- Obtain a detailed pension forecast to understand how these changes will impact your retirement.
- Make full use of your ISA entitlements which is currently £20,000.
- Look at your investment portfolio and (if practicable) ensure you take advantage of the full £3,000 CGT allowance.
- For directors, consider the timing of bonuses to mitigate the planned increase in NIC that is coming in next April.
- Look at salary sacrifice arrangements which can be particularly effective in mitigating the employer’s NIC increases coming up next tax year. These can sometimes take time to set up so don’t leave it too long. You can always contact your normal manager at Myers Clark to explore your options.
- If you are a sole trader or operate as a company, consider purchasing any capital items before your company year-end on March 31st.
- You should take full advantage of your tax-free allowance for gifting under the Inheritance Tax rules? Don’t miss out on this valuable opportunity!
What’s more you need to be familiar with the changes announced in the last Budget. This is particularly important if you own a business and want to pass it on but also if you have large savings in pensions.
These steps are completely legitimate; however, the rules and regulations can be quite complex so reach out if you need help.
What next?
As you can see from the changes we’ve discussed above, tax can be complicated. It is easy to get it wrong if you are unaware of all the allowances you are due. If you rely on HMRC to determine what you owe, you may not always get all the reliefs you are owed.
Your knowledge is limited to what you understand, and HMRC isn’t going to share information with you, unless, of course, they’re looking to collect more tax.
In our view, you should seek professional advice if your tax return is not straightforward. Take a look at how we can assist you with your taxes
As we near the end of the tax year, it’s a great time to review your year-end tax planning. The suggestions we’ve provided are a good starting point, but nothing compares to consulting with experts. If you find completing your tax returns a bit overwhelming and feel uncertain about the process, please don’t hesitate to reach out to us for assistance.
If you are working with us speak to your normal manager in the first instance. If you are not already working with us here’s how we work.