3 handy ways to start your financial planning now for the 2024/25 tax year

Although 2023/24 has only just come to a close, it is worth looking forward and thinking about how you can get ahead for the 2024/25 tax year that started on 6 April. That way, you can put yourself in the best possible position to manage your wealth effectively.

Read on to discover three handy ways to start planning for the new tax year now.

1. Start with your goals

Effective financial planning starts with your goals and what you want to achieve with your wealth. That way, you can make incisive decisions when deciding how to save and invest.

So, at the beginning of this new tax year, it is sensible to start with these ambitions. Consider whether your goals are still the same as they were – for example, if you had previously aimed to retire at 55, is this still what you want? Or have you changed your mind? Indeed, you might now intend to work for longer as a result of certain pension tax changes (more on this later).

Next, you might want to think about your progress towards these targets, checking in to see whether you are on track to achieve what you want.

Knowing whether you are on the right trajectory can then inform how you decide to manage your wealth throughout the rest of the year.

Starting with your goals in this way can offer a crucial foundation for making financial decisions this year.

2. Carefully consider your pension planning

With your goals in mind, the start of the tax year presents an opportunity to see how you could use your pension to achieve them.

As you may know, many key tax allowances and exemptions reset at the start of a new tax year. One of these key thresholds is the pension Annual Allowance.

This is the maximum amount you can contribute to your pension in a single tax year without facing an additional tax charge. This includes contributions from you, your employer, or any other third party.

In 2024/25, the pension Annual Allowance stands at the lower of £60,000 or 100% of your earnings. You can receive tax relief at your marginal rate on your contributions up to this threshold. Furthermore, any interest or investment returns generated on money held within your pension are free from Income Tax and Capital Gains Tax (CGT).

While it does reset at the start of each tax year, you can also carry forward unused Annual Allowance for up to three tax years.

Making the most of your Annual Allowance can be powerful, allowing you to tax-efficiently set money aside for the future – you cannot typically access your pension before the normal minimum pension age (55 in 2024/25, rising to 57 in 2028).

By planning early, you can make the most of – or develop a strategy for using – your allowance without having to play catch-up next April when it will reset again.

Bear in mind that your Annual Allowance may be lower if you are a high earner or you have already flexibly accessed your pension.

Meanwhile, the pension landscape has also changed significantly in 2024/25, with the abolition of the previous pension Lifetime Allowance (LTA) and three new thresholds coming into place.

Previously, the LTA placed a limit on the amount you could contribute to your pensions tax-efficiently. You would have faced an additional tax charge when withdrawing funds in excess of the LTA, which could be up to 55%.

But now, with the LTA removed, there is no longer a lifetime limit on the total amount you can tax-efficiently accumulate in your pensions. As a result, you may now want to consider contributing more to your fund, or perhaps even working for longer than you initially planned, to make the most of the tax benefits that pensions offer while building a pot to support your lifestyle in retirement.

Furthermore, pensions typically fall outside of your estate for Inheritance Tax (IHT) purposes. So, the abolition of the LTA could help you pass on more of your wealth tax-efficiently to your loved ones.

Thinking about your pension planning early in the year could help you capitalise on the latest pension changes.

3. Think about how to mitigate your tax liability

Keeping your money tax-efficient is often a high priority for all. But, this is especially important in 2024/25 because the government has frozen or reduced certain tax allowances, exemptions, and thresholds for this tax year. This includes the:

• CGT Annual Exempt Amount. This is a tax-free threshold for profits made on specific assets, including non-ISA investments, second properties, and certain personal possessions. It has halved from £6,000 in 2023/24 to £3,000 this year.
• Dividend Allowance. You can earn tax-free dividends up to this allowance, whether that is from dividend-paying investments or a company you own. Like the CGT Annual Exempt Amount, the Dividend Allowance also halved this year, falling from £1,000 in 2023/24 to £500.
• Income Tax Personal Allowance. This is a threshold for income, whether that is earnings or pension income, before Income Tax is due. Standing at £12,570, it is frozen here until 2028. Furthermore, the Income Tax bands will be frozen at their current levels until 2028. So, if your earnings increase during this period or you look to withdraw more from your pension to sustain your standard of living, you could find yourself squeezed into the next tax band.

Fortunately, with sensible planning, you may be able to mitigate your tax liability this year. For example, you may want to consider saving and investing wealth outside of your pension in an ISA.

ISAs are highly tax-efficient, allowing you to save and invest without facing Income Tax, Dividend Tax, or CGT on any interest, dividends, or investment returns generated. Furthermore, ISA withdrawals are free from Income Tax.

In 2024/25, you can contribute up to £20,000 to your ISAs. So, making the most of this threshold first when saving and investing your wealth could help you keep your money as tax-efficient as possible.

The ISA allowance resets at the start of each tax year and you cannot carry forward any remaining amount.

Similarly, you may want to tactically liquidate assets up to your CGT Annual Exempt Amount or draw dividends from your business up to the Dividend Allowance so you can make the most of these thresholds without incurring a charge.

In an upcoming article, we will talk in even more detail about tax planning in 2024/25 and what you can do now to make your money as tax-efficient as possible.

Get in touch

As you can see, rules and regulations frequently change, and the information in this article is based on our understanding of current laws and practices.

As a result, it is crucial to take professional advice and stay informed about developments that could affect your personal situation and finances.

If you would like bespoke expert financial and investment advice from an award-winning team of Chartered financial planners, who can help give you peace of mind in this year and beyond, please do get in touch.

Email enquiries@rosebridgeltd.com or call 01204 300010 to speak to one of our team.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate or tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.