‘Tis the season to be jolly, and also a good time to review your finances.  After all, most of us have at least some free time coming up and are more likely to be surrounded by the family that we want to enjoy life with.  As such, this struck me as a good opportunity to review some of the financial matters that come up at the end of the calendar year.

The good news is that from a financial and tax perspective, there’s little about the end of 2024 that actually impacts the majority of people.  Our tax year runs from 6 April to 5 April every year for reasons that very few people understand and even fewer people are actually affected by, so there’s no urgent rush to use ISA or pension allowances.  The next major tax bill is 31 January 2025, which is the last date by which you can submit your self assessment for the 2023/24 tax year and where you also have to make certain payments if HMRC have told you that you owe taxes.

For most of us, this time of year is just a time when we might find some additional breathing room to deal with some things that we have just allowed to build up over the last 12 months.

Early New Year’s Resolutions

It might be worth thinking ahead to the New Year now.  In January, there will be a flurry of people looking at their finances, so why not beat the crowd and start looking now?

As mentioned above, the key financial deadline for most people is 5 April 2025, the last day of the 2024/25 tax year.  This is the last opportunity to use a number of important allowances, namely:

• Individual Savings Account (ISA) allowance – £20,000 per person
• Junior ISA allowance – £9,000 per child, only available to under 18s
• Pension allowance
• EIS/VCT/SEIS allowances (not going to explain what these are, as they are high risk by their very nature and therefore require a high risk appetite to even consider)

ISAs

In general, ISAs are likely to be the first choice for anyone thinking about saving for their future.  Until recently there was competition from pensions because of their built-in exemption from inheritance tax in many cases, but that has been removed as a benefit in the recent Budget.

ISAs are exempt from income tax and capital gains tax providing the assets are allowable, and most investment assets can be held within an ISA.  This means that if you invest £100,000 into ISAs (cumulative across many years) and turn it into £200,000, there would be no tax to pay on that growth.

Everyone has an annual ISA allowance of £20,000 each year, but if this is unused when the tax year ends it is lost.  As such, this is a good allowance to make use of each year if possible, either by making a lump sum contribution or by setting up a regular investment so that the allowance is used up automatically.

Junior ISAs

While adults have access to ISAs (see above), children have a limited ability to access tax free savings.  Children aged 16 and over can access a standard cash ISA with the full allowance of £20,000.  While under 18 they can also have contributions made into a Junior ISA on their behalf, with an annual cap of £9,000.

Junior ISAs can invest in much the same way as a standard adult ISA.  When the child turns 18, their Junior ISAs will turn into standard adult ISAs.

If you are able to save the full £9,000 a year for your child for the first 18 years of their life, they will enter adulthood with £162,000 plus growth.  Even if you are not able to maximise this, the cumulative impact of saving like this can make an enormous difference to your child’s start to adulthood.

Pensions

Pension allowances are a little more complicated to work out, but most of the time it comes down to this for personal contributions:

• The greater of:
  • The lesser of:
    • £60,000
    • Your net relevant earnings.
  • £3,600

This means that if you earn £25,000, the maximum you can pay into a pension is £25,000 gross.  If you earn £100,000, then you hit the cap of £60,000.  If you have no earnings, then you can pay in £3,600 regardless, which can be one of the most tax efficient ways to save for your future.

Incidentally, the statutory allowance also applies to children, who are technically taxpayers from the day they are born (though most will not actually pay tax because they don’t have any income or assets yet).  As such, if you are a parent thinking about your child’s future, you can choose to pay a net contribution of £2,880 into a pension for your child.  This will be grossed up to £3,600, giving £720 of tax relief for tax that is very unlikely to be incurred.

For more information on pensions, take a look at my Beginner’s Guide to Pensions.