The end of the tax year is fast approaching, and with it comes a use-it-or-lose-it deadline! Your personal allowance—the amount you can earn tax-free—is £12,570 for 2024/25. But here’s the catch: if you don’t use it before 5 April 2025, it’s gone forever.
So, what can you do to maximise your tax-free income before the deadline? Let’s explore five smart strategies.
1️ Pay Yourself a Salary or Bonus
If you run a personal or family business, you might want to pay yourself a salary or bonus before 6 April 2025 to make the most of your allowance.
- The optimal salary for 2024/25 is £12,570 (assuming you’re not using your allowance elsewhere).
- If you haven’t paid yourself this much yet, there’s still time to do so before the tax year ends.
This is a tax-efficient way to take money from your business while keeping within your tax-free threshold!
2️ Bring Income Forward or Delay Expenses
From 2024/25 onwards, the cash basis is the default for unincorporated businesses, meaning:
- Income is taxed when received (not when invoiced).
- Expenses are deducted when paid (not when incurred).
If your taxable profit is below £12,570 and you have no other income, consider bringing income forward—for example, by invoicing earlier. Alternatively, you could delay paying expenses until after 6 April 2025 to increase your taxable income this year and make full use of your allowance.
3️ Withdraw More from Your Pension
Are you 55 or older and have already accessed your pension? If so, you could take additional pension payments to use up any remaining personal allowance.
If you haven’t reached your £12,570 limit, you could withdraw more tax-free before the tax year ends. Every pound taken within your allowance is tax-free, making this an efficient way to access your pension without a tax hit.
4️ Protect Your Allowance if You Earn Over £100,000
If your adjusted net income exceeds £100,000, you’ll start losing your personal allowance—and it’s completely gone by the time you reach £125,140.
This means that for income between £100,000 and £125,140, you’re effectively paying an eye-watering 60% tax rate on that portion of your earnings!
To reduce your taxable income and preserve your allowance, consider:
- Delaying bonuses or dividend payments (if you run a personal or family company).
- Making pension contributions to bring your income below £100,000.
- Donating to charity—this reduces your adjusted net income while benefiting a good cause!
5️ Claim the Marriage Allowance
If you’re married or in a civil partnership and won’t use all of your personal allowance, you could transfer £1,260 of it to your partner—saving them up to £252 in tax!
- Your partner must be a basic rate taxpayer (earning between £12,570 and £50,270).
- This is not automatic—you need to apply for the Marriage Allowance to claim the tax benefit.
Final Thoughts – Don’t Let Your Allowance Go to Waste!
Your personal allowance resets every tax year, so if you haven’t made the most of it yet, now’s the time to act.
Not sure what’s best for you? We’re here to help! Get in touch with Jon and the team today for expert advice on how to maximise your tax-free income before 6 April 2025.
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