Tips for the end of the tax year
It’s that time of the year when it’s worth considering any actions that should be taken before the tax year ends on 5 April. Here are a few IHT and CGT tips:
Inheritance tax (IHT) – Gifting
Broadly speaking, outright gifts made in the 7 years before you die are brought back into your estate for IHT purposes and may increase the IHT payable on your death. There are some useful exemptions which you could consider using.
Annual allowance: Each individual can give away £3,000 in any tax year without any IHT implications. Any unused amount can be carried forward for one year only to give a maximum of £6,000. If you wish to reduce the IHT liability on your estate and have not fully used your 2024/25 or 2023/24 IHT annual exemption, now is the time to use it, before it is lost for good. It is of course possible and often beneficial to give away more than the annual exemption and provided you survive 7 years it will have no consequences for IHT.
Updating records: Now might also be the time to update your spreadsheet of gifts made over the last 7 years. This will be of great assistance to your executors after your death. If any are now over 7 years ago, this will free up some of the IHT nil rate band that could be used to make further gifts within the nil rate band if you wish to do so.
Gifts out of income: If you have surplus income (after deducting the amount to maintain your normal standard of living), regular gifts from this income may be exempt from IHT. It is important to keep detailed records of income, expenditure and gifts (ideally by tax year) and you may like to also consider documenting your overall intentions in a statement or deed. We can advise you on the evidence for the exemption if required. The better the records kept, the more chance of a successful claim by your executors after your death. If there is significant surplus income, then gifts to trusts may be combined with this exemption.
Gifts to UK charities: These are exempt for IHT purposes and have the added advantage that the charity will benefit from gift aid and if you are a higher or additional rate taxpayer you can claim additional income tax relief for this tax year.
Capital gains tax (CGT)
Using losses: If you have incurred a CGT liability for this tax year it is worth considering whether you have any assets with inbuilt losses that you could dispose of before the end of the tax year to realise a loss to offset against the gain.
Annual allowance: If you have not incurred a CGT liability, you might wish to consider disposing of shares to use your annual CGT allowance of £3,000 especially if you are likely to need access to a cash sum of this amount or more in the near future.
ISA Allowance: Investments held within an ISA are exempt from CGT so if you have not used your £20,000 annual ISA allowance for 2024/25 then you should consider this before it is lost after 5 April 2025. You could also consider ‘bed and ISA’ where investments are sold from a standard portfolio and then bought back in the ISA. Advice should be taken.
Transfer to spouse: Assets can be transferred between couples who are married or in a civil partnership without CGT consequences (this does not apply to cohabiting couples). The current CGT rates are 18% for a basic rate taxpayer and 24% for a higher rate taxpayer, it is important to consider the tax band and utilise the allowances of both of a couple.
Furnished holiday lets (FHL): The rules are changing from 6 April 2025, so urgent advice should be taken if you are considering disposing of a FHL property and hoping to benefit from Business Asset Disposal Relief (BADR) and aiming to pay CGT at 10% rather than 24%.
BADR: For qualifying disposals, the reduced CGT rate is increasing from 10% to 14% after the end of the current tax year and to 18% from 6 April 2026 onwards. The relief remains capped at £1 million on lifetime gains. This means consideration should be given and advice sought in relation to the timing of any upcoming disposals.
Probate and estates
Distributions: If you are the executor or administrator of an estate, you should consider whether cash distributions could and should be made now to residuary beneficiaries. Distributions are considered to be made from income first and so making sure that they are split over tax years can prevent ‘bunching’ of estate income in one tax year which could then push a beneficiary into a higher income tax band.
IHT payments: The interest rate on unpaid IHT is due to increase in April 2025 by 1.5% (from base rate plus 2.5% to base rate plus 4%). This is separate to any fluctuations in the underlying base rate. From February 2025 the base rate is 4.5% so this will mean that the current 7% interest will increase to 8.5%. Executors would therefore be well advised to ensure that any IHT payments are up to date to avoid the additional interest.
CGT: If the estate has a potential CGT liability, then it may be possible to utilise the annual allowances of the beneficiaries (if they have unused allowances available) by ‘appropriating’ the asset to them prior to sale to increase the overall CGT allowance and minimise the CGT payable. Splitting sales between tax years can also help to maximise allowances but this must be balanced against the possibility of the assets decreasing in value and advice should be taken.
If you would like further information on any of the above tips then please get in touch with our private wealth services team by requesting a consultation.
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