As the current tax year comes to an end on 5th April, it’s important to ensure your clients feel prepared for the new financial year ahead with new strategies aimed to reduce their tax liabilities and optimise their financial position. To support advisers to make the most of the next few weeks, we have prepared 12 considerations for clients’ financial strategies for FY25-26.
Maximise clients’ tax-efficient savings
There are still opportunities to support your clients to make the most of the tax-efficient savings available to them. The first – and most pressing – is to ensure that they have used their full £20,000 ISA allowance before year-end. If not, consider whether any other investments can be transferred into an ISA to benefit from the tax-free growth this type of savings account provides.
The second consideration is around pension contributions. The annual allowance for pension contributions has increased to £60,000, which can be a good consideration for clients’ savings strategies in itself. Even if the full allowance has been contributed this tax year, you can still help your clients to unlock further pension contributions with the carry-forward rule, where any unused allowances from the last three financial years can still be contributed this year.
Retain your clients’ benefits
Speaking of pensions, for clients who fall into the income bracket of £100,000 to £125,140 should consider retaining their personal allowance as it reduces their taxable income. The personal allowance is reduced by £1 for every £2 of earnings over £100,000 and is lost entirely for those earning over £125,140 – contributions that bring income between these two figures can effectively provide a 60% tax relief rate, so should be a key consideration for clients.
For clients who are parents, they may wish to retain any child benefits they are entitled to moving into the new tax year. This depends on your clients’ annual salary, but making pension contributions again is a useful route of reducing income below the £60,000 threshold, which then allows them to unlock and reclaim their child benefits again.
Consider more strategic investments
Both the enterprise investment scheme (EIS) and venture capital trusts (VCTs) are investments which can diversify a clients’ portfolio and offer substantial tax benefits, while at the same time helping to support innovative businesses.
The EIS is a government-led initiative which helps smaller but high-growth companies raise that all-important capital by offering tax relief to their investors. EIS investments provide 30% income tax relief and also qualify for capital gains tax deferral. In fact, if investments are held for at least three years, any gains are actually free from capital gains tax, so it’s a useful route to reducing your clients’ tax liabilities.
Similarly, a venture capital trust is a publicly-listed vehicle which allows individual investors to invest in early-stage, high-growth. They’re another route to income tax relief, offering 30% relief on investments up to £200,000 per tax year alongside providing tax-free dividends and capital gains.
Managing clients’ gains and donations
While many of the strategies already discussed offer some capital gains tax relief, with the reduction of the CGT allowance to £3,000, it’s essential that clients’ portfolios are managed carefully. As the rate of capital gains tax is linked to a client’s income tax, pension contributions can also help here to reduce the rate paid on any capital gains.
It’s also important to consider gifting allowances and charitable donations here. The gift aid scheme allows higher-rate taxpayers to claim additional relief on their tax returns, as well as providing charities with an extra 25p for every £1 donated, which is a win-win. It’s also possible for clients to give up to £3,000 to friends and family each tax year as part of their gifting allowance, which should also be factored in for any inheritance tax planning.
Planning for couples
Whether one or both parties in a couple are your clients, you should aim to maximise tax relief at higher rates for couples to make the most of their combined allowances. If one partner has no relevant earnings, they can contribute up to £3,600, but if both have relevant earnings, they can contribute up to 100% of this, ensuring that both partners benefit from the highest possible tax relief.
Looking beyond spouses and partners, third-party pension contributions for children and grandchildren should also be considered as part of tax planning. Recipients can benefit from tax relief on the pension contributions, and regular gifting in this way from surplus income could also be effective from an inheritance tax perspective, as these gifts may fall outside of the estate if the exemption conditions are met.
Making the most of bonuses and business profit
The tax year end coincides with the business year end for many companies, which can mean it’s the time of year when bonus payments roll around for some clients. ‘Exchanging’ a bonus for an employer pension contribution before the tax year end can bring several tax benefits as again it reduces a clients’ income, including the national insurance savings which can also be used to boost pension funding.
For clients who are business owners, it’s also the time of year where they may be taking a significant amount of profits as dividends after their corporation tax is paid. A useful consideration for any business owner clients – but particularly those who are nearing the age where they can access their pension – is to use some of those profits to make an employer pension contribution with full corporation tax relief.
Depending on your clients’ income and life circumstances, there could be one or several of these considerations which could optimise their financial position for the 2025-2026 tax year. Financial advisers play a crucial role in navigating tax planning on their clients’ behalf, so it’s important to reach out to clients now to get any strategies agreed before the year end.
