Our guide to the tax year end
The tax year end used to fall on Lady Day, 25th March, in the old Julian calendar, when rents, debts and taxes were traditionally settled. Over time, the Julian calendar drifted by about 11 minutes per year compared with the more accurate Gregorian calendar, which had been adopted by much of Europe. By 1752, Britain was 11 days out of sync. When Britain finally adopted the Gregorian calendar in 1752, those 11 days had to be skipped to bring the dates back into alignment.
Unsurprisingly, the Exchequer of George II, along with landlords and money lenders, had no intention of losing 11 days’ revenue. To compensate, the tax year-end was moved from 25th March to 4th April. Less than half a century later, it was adjusted again, settling on 5th April, where it has remained ever since.
This date has now been fixed for 230 years, so it should come as no surprise to receive a nudge to get your year-end tax planning in order – and to take sensible steps to reduce how much of your hard-earned money you and your family hand over in tax.
Indeed, this year, more than most, there is good reason to pause and take stock. Recent Budgets have introduced some of the most far‑reaching changes to personal tax, pensions and inheritance rules in over a decade. Some have already taken effect. Others, particularly the changes to pension taxation from 2027, are on the horizon and will significantly alter how families should think about preserving wealth.
Here we highlight the themes that crop up most often, but at the end of the article we provide a link to a more comprehensive checklist, for those wanting to delve a little deeper.
A Changing Landscape for Pensions and Inheritance
One of the most significant shifts on the horizon the inclusion of pensions, from April 2027, within the scope of IHT. This removes the power of pensions as a vehicle for transferring wealth between generations, and forces a re-think for those who have deliberately structured their affairs with pension savings at the heart of their long‑term legacy plan. Updating Wills, and understanding the interaction between pensions and other assets, now carry greater weight.
These changes don’t mean pensions have become any less valuable as a savings vehicle; you can pay up to £60,000, or 100% of your earned income, into your pension scheme. Contributions receive tax relief at your highest marginal rate, and your pension pot’s income and capital gains are free of tax. While the relief is reduced for those earning over £260,000, the tax-free growth within the pot remains a primary benefit, provided you don’t need the money before age 55.
Why not set one up for your children, or grandchildren, too? Contribute £2,880 a year and the government will add up to £720 basic tax relief (20%), bringing the total contribution to £3,600. Some 50/60 years of potential growth, and a useful IHT mitigation strategy. This can be especially beneficial for family undertaking further education, who won’t enter the workplace until their mid-twenties.
Salary Sacrifice – Until 2029
The rules on salary sacrifice change in 2029, but you can still consider salary sacrifice arrangements to move into a more advantageous tax band, or to prevent you earning too much money and become ineligible for 30 hours free childcare for working parents with very young children. With the changes in salary sacrifice a few years off, now may also be the time to consider renegotiating your salary, perhaps obtaining greater pension contributions from your employer, or receiving shares as part of your compensation.
ISAs – Still a Great Tool
The ISA allowance has been £20,000 since tax year 2020-21, and while it has been eroded by inflation, using the full allowance remains vital. There is no tax relief when you pay into an ISA, but the income and capital gains are tax free – a valuable benefit over time. You can also squirrel away up to £9,000 into a Junior ISA for any child under 18; they take possession of it when they reach 18 though, for better or worse.
Capital Gains and the “Spousal Shuffle”
With a CGT allowance of £3,000 a year, good planning is essential. If you have any gains, look to see if you have any losses to offset them. Inter-spousal transfers are tax free, so consider transferring some of your savings to your spouse, if they enjoy a lower tax rate, to reduce your overall tax bill. If you are not married, but have a long-term partner, maybe now is the time it to visit a jeweller. Transferring some investments to your non-tax paying spouse will also allow you to use their £500 dividend allowance or their £1,000 interest allowance (reduced to £500 for higher rate taxpayers).
For Owners and Directors – Beat the 2% Surcharge
If you have your own company, and you are considering paying a dividend, then do it before the 5th April, before the new 2% surcharge on dividends comes into force. It is probably too late to change the payment dates for rents and interest receivable by you, but call a board meeting, declare the dividend and pay the dividend soon.
Business owners face an additional layer of year-end planning — not only for themselves but for their companies. Pension contributions made through a business can be a tax-efficient way to build personal retirement savings while reducing the corporate tax burden. Decisions around salary and dividend mix, business protection, share schemes or succession planning are often best reviewed before the end of the tax year, when more options remain open. Even small restructurings can have a material effect when approached early rather than in haste.
Inheritance Tax and Gifts
You can gift £3,000 per person annually free of inheritance tax in the event of your death. If you did not make a gift last year, you can bring forward your allowance and gift £6,000. You may be able to gift a bit more if you can show the gift is paid out of income. While £6,000 doesn’t “move the dial” much for a child facing university debt or a house deposit, you can gift larger sums as “Potentially Exempt Transfers”, provided you have the good health to live for another seven years.
Updating your IHT403 – Your Beneficiaries Will Love You Even More
If you instantly recognise this and are in the habit of updating it, well done. If not, and you are wondering what on earth we are talking about, then read on. HMRC’s Form IHT403 is the paperwork used to report any gifts made by the deceased in the seven years before their death. It has been described as HMRC’s ‘deep dive’ into a person’s lifetime gifting; it tells the taxman exactly what left the estate before death, and when. And it has to be completed by the Executor. He/she has only 12 months to do so, no mean feat if they are trying to garner the necessary information, possibly from now-closed bank accounts going back many years. Delays in completion can impact on distribution to Beneficiaries, compounded by HMRC charging 7.75% interest on late payments of IHT. Help your Executor by filling in the form each year, you are the best-placed person to do so, and record the details in your lifetime. The form can be downloaded from the internet and is relatively straightforward, but speak to us about any queries, and remember to keep the latest copy with your Will.
The Other (but no less important) Stuff
Beyond tax rules and government policy, the fundamentals of good financial planning remain the same. Ensuring you have the right level of insurance to protect family or business, the right mortgage structure, up-to-date Wills, suitable Powers of Attorney, and a realistic emergency fund, are the bedrock of long-term financial resilience. These areas are often overshadowed by investments and tax but, in practice, they are what allow wealth to grow and be preserved over a lifetime.
No Really, It Is Fun
Some people insist tax-year planning is boring – but that’s simply not true. You do get to speak to your financial advisor, fill in lots of forms, and best of all, remind yourself how much money you could be saving with a bit of forward thinking. A relatively small investment of time now won’t completely cauterise the pain of next year’s tax return, but it will take some of the sting out of it and might even pay for your next holiday if you get it right.
If you’d like help making sure it is done right, speak to us here at Callanish. Enjoy.
For a more comprehensive checklist, click here.
Please be aware that the value of investments may go up or down and you may receive back less than you invested originally. Past performance is not a guide to the future.
This document contains general information only and does not provide any advice or guidance specific to your personal circumstances.
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Callanish Capital Ltd is a Discretionary Fund Manager, directly authorised and regulated by the Financial Conduct Authority (“FCA”) under registration number 955992.