Last-minute tips before tax year end

The end of the 2024-25 tax year is on Saturday 5 April so the next few days are critical for making sure all tax free allowances have been used if you have any spare money.

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: ‘Tax year end is just days away, but there’s still plenty you can do to make sure you are optimising your retirement planning.

‘Making the most of your allowances enables you to benefit from tax relief and put you on track for a more financially resilient retirement.’

Here are Morrissey’s top five tips for maximising year end tax planning.

1. Are you making the most of your pension allowances?

The annual allowance means that you can contribute whichever is the lowest of your annual earnings or £60,000 to your pension and receive tax relief. You get tax relief at your marginal rate which means that for a higher rate taxpayer that £60,000 contribution costs just £36,000.

Use any unused annual allowance from the past three tax years to top up a pension. This is known as carry forward and means this tax year you can contribute up to £200,000 to a pension as long as you earn enough.

2. Pay into spouse or children’s pensions

Contribute up to £2,880 into the self invested pension plan (SIPP) of a non-working spouse/partner or into a junior SIPP for your child. They receive tax relief from the government, bringing the contribution up to £3,600.

‘It’s a great way to boost the pension of a spouse while they are out of the workforce. It can also give your child a real leg up the retirement ladder,’ said Morrissey. ‘If you have used up your own allowances, it can be a very efficient use of money.’

3. Claim tax relief

The right level of tax relief may not be given automatically. Higher or additional rate taxpayers pay into a relief at source pension arrangement, so only basic rate tax relief is taken automatically.

Many private pensions, such as SIPPs and some workplace pensions, are set up under relief at source, with contributions deducted from salary after tax. The employer takes 80% of the contribution from the employee’s salary and then reclaims the extra 20% from HMRC. This means if you are entitled to tax relief at a higher rate it is important to reclaim via an online self assessment tax return.

If the pension is set up as a net pay arrangement, where the employee’s pension contribution is deducted from salary before income tax is paid, then the pension scheme claims back tax relief at the payee’s marginal rate of income tax. This means it is not necessary to do anything further.

Similarly, if a pension is set up as a salary sacrifice arrangement you will not need to reclaim extra relief. Check with your provider to see what type of scheme you are in.

4. Don’t forget ISAs

Pensions are an extremely tax efficient way to save for retirement, but ISAs can play a role as well. The annual tax free ISA allowance is £20,000 per year with the money shielded from capital gains tax (CGT) and dividend tax. Any income taken is tax free so it can play an important role in helping manage tax bills in retirement.

5. Topping up NICs for full state pension

If you are man born after 5 April 1951 or a woman born after 5 April 1953, you can plug gaps in your National Insurance record going back to 2006 to boost your state pension. Note that after 5 April 2025, it will only be possible to backfill six years.

After this, individuals are restricted to gaps going back six tax years. Gaps occur when people spend time out of the workforce – for instance, looking after loved ones.

Checking your state pension record will show what you are on track to receive and if there are gaps discuss your options with the government’s Future Pension Centre.

It may be possible to plug gaps for free through a backdated benefit application or pay to top up.

Morrissey said: ‘As the deadline nears, helplines have got busy and you may struggle to get through. However, the Department for Work and Pensions (DWP) has introduced a call back option where you give them your details and they will get back to you. It may be after the tax year end, but as long as your request came in before the deadline you can top up.’