Contents

• Introduction.
• What is year-end tax planning?
• Year-end tax planning advice for individuals.
• Checklist for individuals. 
• Year-end tax planning advice for businesses.
• Checklist for businesses. 
• Summary.

Introduction

The UK tax system has seen major changes following the Autumn Statements of 2023 and 2024, introducing both tax cuts and increases that impact individuals and businesses alike.

In the 2024 Autumn Statement, Chancellor Rachel Reeves announced several tax hikes, including an increase in Capital Gains Tax (CGT) rates—rising from 10% to 18% for basic rate taxpayers and from 20% to 24% for those in higher and additional tax brackets—effective from 30 October 2024. This change will impact the transactions involving assets like shares and commercial real estate. The current Capital Gains Tax rates of 18% and 24% for residential property sales will stay the same. Additionally, the CGT rate for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026.

Employer National Insurance contributions (NICs) will also see an increase starting in April 2025. In contrast, the 2023 Autumn Statement, delivered by then-Chancellor Jeremy Hunt, was positioned as the “biggest package of tax cuts since the 1980s,” introducing a 2% reduction in employee NIC and cuts for the self-employed. However, the continued freezing of Income Tax thresholds until 2027/28, combined with inflation, has resulted in an effective tax increase for many individuals.

With persistent financial challenges, including inflation, high interest rates, and increasing energy costs, careful tax planning is more important than ever. This guide breaks down the most significant tax changes, their effects, and how individuals and businesses can take advantage of available reliefs and allowances before further adjustments come into play.

What is year-end tax planning?

Year-end tax planning is the process of reviewing and optimising financial decisions before the close of the tax year to minimise liabilities and maximise savings. For individuals, this means strategies like adjusting income timing, maximising deductions, contributing to retirement funds, making charitable donations, and managing investment gains or losses. Businesses can benefit by tracking expenses, optimising deductions, planning asset purchases, and contributing to employee retirement plans. Effective tax planning not only reduces tax burdens, but also ensures compliance with regulations, preventing costly penalties. While year-end tax planning is carried out in the first part of the calendar year for individuals, approaching 5 April.

Year-end tax planning advice for individuals

Income Tax saving opportunities

Switching income from one spouse or partner to the other can help save tax.

Everyone should make sure they use their personal allowance (a maximum of £12,570 in 2024/25, and frozen at this level until 2027/28).

For couples, if either a spouse or a civil partner will not be able to use their personal allowance for 2024/25, then claiming the marriage allowance will save the other spouse or civil partner up to £252 in tax. However, a claim can only be made if the recipient does not pay tax above the basic rate.

Claims can be backdated for four tax years, so the advantage of making a claim by 5 April 2025 is the inclusion of the 2020/21 tax year. Also, try to minimise any higher and additional (top) rate tax.

• Income over £125,140 is currently taxed at 45%, or 48% for non-savings, non-dividend income in Scotland.
• The personal allowance is withdrawn where income (less certain deductions) is more than £100,000.
• An individual may be able to reorganise both their financial affairs to avoid exceeding one of these limits. However, CGT may be payable on switching ownership of an investment if they are not married or in a civil partnership.

Each individual may receive £500 of dividends tax-free in 2024/25 regardless of their tax status. Reorganising their shareholdings between them may make better use of this limit. One can also receive £1,000 of savings Income Tax-free if they are a basic rate taxpayer, and £500 if paying tax at the higher rate.

If the individual or their partner have little or no earnings or pension income, they might also benefit from a 0% tax rate on up to a further £5,000 of savings income. Again, shifting assets between them can help minimise tax on their savings income. A £1,000 tax-free allowance is available for income from property, such as where a parking space is let out, so joint ownership could result in a modest tax saving.

Tax-saving strategies for spouses

By shifting income between spouses or partners, an individual can reduce their Income Tax liability through several effective strategies:

• Transferring shares or property: If one partner is in a lower tax bracket, transferring income-generating assets like shares, rental properties, or investment portfolios to them can reduce the overall tax burden. When transferring assets between spouses or civil partners, no CGT is triggered, making this an efficient strategy.
• Adding a spouse to the payroll: If an individual runs a business, employing their spouse or civil partner can be an effective method to distribute income. The salary must reflect the actual work performed to meet HMRC’s ‘wholly and exclusively’ rules for business expenses. By paying one’s spouse a reasonable wage, they reduce their taxable profit while shifting income to someone potentially in a lower tax bracket.
• Dividends from a family business: In a family-run limited company, allocating shares to a spouse allows dividend payments to be distributed between both individuals. This can effectively use both individuals’ tax-free dividend allowances and lower tax bands.
• Shifting savings interest: Moving savings accounts or bonds that generate interest to a lower-earning spouse can also minimise tax liability. Since savings interest may fall under the Personal Savings Allowance (with basic rate taxpayers getting a £1,000 allowance vs. £500 for higher-rate taxpayers), this switch can improve tax efficiency.

Child benefit

Where either partner has income of £60,000 or more then child benefit is in effect withdrawn. The withdrawal is total if income is over £80,000, and partial for income between £60,000 and £80,000. An individual may be able to keep some or all of their child benefit by switching income between themselves and their partner, or by taking other steps to bring their income below one of these limits.

Planning point

One may be able to reorganise their finances now to make use of some of these opportunities for 2024/25, but they should plan ahead for 2025/26 to gain the maximum Income Tax saving.

For further information, contact Amal Shah.

Planning for directors and employees

Bringing forward income could be a sensible approach if an individual is not currently an additional rate taxpayer, but expect to become one next year.

• If one’s income is less than £125,140 this year, but is expected to exceed that figure next year, they could bring forward income into 2024/25 to avoid the additional or top rate next year.
• Conversely, if one’s income will fall below £125,140 in 2025/26, they might be able to avoid the additional or top rate of Income Tax this year by delaying a bonus until after 6 April 2025.

An individual could consider a similar strategy to keep their income below the level at which they would lose their personal allowance. Alternatively, they could sacrifice salary to bring their income below any of the thresholds in exchange for a tax-free employer’s pension contribution or a low-emission company car.

If an individual has had to work from home this year, they can claim a tax-free amount of £312 for 2024/25 to cover the additional costs involved (provided their employer does not reimburse them). They can use HMRC’s online portal before 6 April 2025 so that they receive the benefit via their PAYE code for 2024/25. However, this relief is only available if the individual has to work from home, not if they merely choose to do so.

Other considerations

• This is also a good time to review an individual’s company car situation, especially if they have been working from home and expect this to continue long term. If an individual is hardly using their company car, they can return it to their employer to remove the tax charge. Alternatively, switching to a fully electric car or an ultra-low emission hybrid with a high electric motoring range, will drastically lower the tax cost. Such a switch will also save tax and NICs for the company.
• If an individual is going to work abroad for more than a year, it may help to leave the UK before 6 April 2025. There are complex rules around residency, so they should seek specific advice.

Dividends

The current dividend tax-free allowance is £500 for 2024/25. If an individual is the owner of a limited company, it would be wise to ensure they make use of the dividend tax-free allowance for 2024/25. Similarly, if an individual is a higher rate taxpayer and may become an additional rate taxpayer in 2025/26 (or Scottish top rate taxpayer), they could bring forward a dividend to avoid the additional rate (or Scottish top rate) next year. This could also help if the income falls into the basic rate band this year (or Scottish starter, basic, or intermediate rate bands). But an individual should avoid bringing forward a dividend if it is more likely to fall into a higher band this year than next year.

Dividends can be controlled by the directors of a company, allowing them to restrict dividends to remain below £100k to manage tax liability. An individual could also consider pension contributions as another method to reduce taxable income.

An individual could even give shares to their spouse or civil partner shortly before paying a dividend if they pay tax at a lower rate than the individual, provided they genuinely transfer ownership. It is advisable to leave as much time as possible between the gift and the subsequent dividend payment.

For further information, contact Amal Shah.

Self-employment

The director/employee tax planning approach around income levels applies equally to those who are self-employed.

If an individual is self-employed, they might be able to affect the timing of their taxable profits to avoid paying tax at 45% (48% in Scotland), but this will depend on their accounting date.

Complicating matters, 2024/25 is the transition to taxation of business profits actually arising in the tax year. This has impacted those not currently on a 5 April/31 March year-end. For 2024/25, taxable profits will be based on those arising within the tax year itself.

It is important to note that in the 2023/24 tax year, taxable profits were based on the 12 months from the end of the 2022/23 basis period, plus a transition component running from the end of this 12-month period to 5 April 2024. Any additional profits arising from the transition are spread over a five-year period, but businesses could have opted out of spreading the profits. While the decision was made on spreading profits, one should’ve taken into account that the personal allowance and higher rate thresholds are frozen, and also that the class 4 NIC main rate is 1% lower from 2024/25 onwards.

Partner’s salary

An individual could pay an otherwise non-earning partner a salary, on which they will get tax relief. An individual normally must keep PAYE records even if the salary is below the NICs limit, which is £533 a month in 2024/25. If, however, the salary is between £533 and £1,048 a month, the individual’s partner will avoid paying any employee NICs, but will still qualify for state benefits. A small amount of employer NICs will be payable if the salary exceeds £758 a month.

An individual can also pay an employer’s contribution to their partner’s personal pension plan. There are no taxes or NICs on the payment itself, and it should be an allowable business expense. However, the total value of an individual’s partner’s salary, benefits and pension contributions, must be justifiable in relation to the work performed.

Alternatively, one could plan ahead to share the profits of their business by operating as a partnership in 2024/25. Both individuals need to be genuinely involved as business partners, though not necessarily equally.

Planning point

With Corporation Tax charged at 25%/26.5% once company profits reach £50,000, there are now fewer tax advantages to running a business as a limited company than was previously the case. If an individual is considering incorporation, they need to carefully weigh up the tax and other advantages and disadvantages of taking this step.

Useful link: Helpful advice for businesses.

For further information, contact Sarah Burns.

Get ahead on Capital Gains Tax planning

Some careful forethought can help minimise an individual’s Capital Gains Tax (CGT) bill.

Everyone has an annual CGT exempt amount, which in 2024/25 makes the first £3,000 (£1,500 for trusts) of gains free of tax.

• Starting from 30 October 2024, if this amount falls within the basic rate Income Tax bracket, a tax rate of 18% will apply to one’s gains, where taxable gains and income are less than the non-Scottish basic rate limit of £37,700 in 2024/25. However, for gains realised between 6 April 2024 and 29 October 2024, the applicable rate will be 10% (or 18% for residential property and carried interest).
• If an individual’s gains exceed the basic Income Tax threshold, a 24% tax rate will apply from 30 October 2024 (or 28% for carried interest). For gains accrued between 6 April 2024 and 29 October 2024, the applicable rate will be 20% (or 24% for residential property and 28% for carried interest).

An individual should generally aim to use their annual exempt amount by making disposals before 6 April 2025. If an individual has already made gains of more than £3,000 in this tax year, they might be able to dispose of loss-making investments to create a tax loss. This could reduce the net gains to the exempt amount.

Timing disposals

If an individual has incurred a net loss from disposals during the current tax year, their decision to realise gains by disposing of investments before 6 April 2025 becomes particularly relevant for CGT planning.

Timing the disposals effectively can help offset losses against gains, potentially reducing their overall CGT liability, depending on the amounts involved and the broader tax implications.

Transferring assets between married couples or civil partners before disposal might save CGT, particularly where one partner has an unused exempt amount, has not fully used their basic rate tax band or has capital losses available. One should generally leave as much time as possible between the transfer and the disposal.

CGT is normally payable on 31 January after the end of the tax year in which an individual makes the disposal. An individual could therefore delay a major sale until after 5 April 2025 to give themself an extra 12 months before they have to pay the tax (but be careful of the impact of the reduction in the exempt amount).

However, a payment on account of CGT must be made within 60 days of a residential property disposal (other than of an exempt principal private residence). There is therefore no timing advantage to delaying such a disposal. Additionally, individuals are required to report disposals and pay CGT through their Self-Assessment tax return. If the gains exceed the annual exempt amount, the individual must include the disposal details in their return. If the individual is not required to complete a Self-Assessment tax return, they must report their CGT via HMRC’s online service, which allows for direct reporting and payment within 30 days of the disposal. Failing to report or pay on time could result in penalties, making it crucial to time disposals effectively and report them accurately.

Planning point

Timing of an individual’s disposals is particularly important if disposals in this tax year have already resulted in a net loss. Depending on the individual’s level of income, making a further disposal either side of the tax year end could save or cost them tax.

A shareholding or another chargeable asset might have lost virtually all value. If so, an individual can claim the loss against their capital gains without actually disposing of the asset, by making a negligible value claim. An individual can backdate the loss relief to either of the two tax years before the one in which they make the claim, provided that they owned the asset in the earlier year and it was already of negligible value. The deadline for backdating a claim to 2022/23 is 5 April 2025.

For further information, contact Eleanor White at ewhite@GeraldEdelman.com.

Pension tax planning

The tax privileges of investing in pension plans generally make them a key focus in tax planning.

Pension funds are broadly free of UK tax on their capital gains and investment income. When an individual takes the benefits, up to a quarter of the fund is normally tax free, but the pension income will be taxable.

Most people aged 55 (rising to 57 in 2028) and over can draw their pension savings flexibly. Withdrawals above the tax-free amount are liable to Income Tax at the marginal rate. An individual should take advice before accessing pension savings as there are several options and they will generally have a long-term effect on your financial position.

The annual allowance was left untouched in the Autumn Statement of 30 October 2024, but a future reduction in tax relief for pension contributions remains a possibility. An individual might want to maximise their pension contributions for 2024/25 by making further contributions before 5 April 2025.

Contributions

There is an annual allowance of £60,000 on pension contributions that qualify for tax relief, although this allowance is tapered down to a minimum of £10,000 if one’s income exceeds £260,000.

An individual can, however, carry forward unused annual allowances for up to three years to offset against a contribution of more than the annual allowance. For people already drawing a flexible income from a pension, the annual allowance is also £10,000.

• An individual can pay up to the whole of their earnings into a pension scheme, but the tax relief is capped by the annual allowance plus any unused allowances brought forward.
• Tax relief on pension contributions is normally at least 20%, and higher or additional rate taxpayers receive relief at 40% or 45%. In Scotland, intermediate, higher and top rate taxpayers receive relief at 21%, 42% or 48% respectively. Limiting the individual’s contributions to amounts that qualify for at least 40% tax relief will give them the most benefit.
• Effective relief can be as high as 60%, or 63% in Scotland, where the personal allowance is being withdrawn, and can be even higher if universal credit payments or tax credits are being withdrawn.
• An individual could set up a pension for their partner or children since they don’t need earnings to build up to £3,600 in a personal pension. Even if they do not pay any tax, they can still benefit from 20% tax relief.

Lifetime Allowance

From the 2024/25 tax year, significant changes have been made to pension rules, particularly regarding the Lifetime Allowance.

The Lifetime Allowance (LTA) refers to the maximum amount an individual can accumulate in their pension savings without facing extra tax charges. Previously, exceeding the LTA of £1,073,100 triggered an additional tax charge, but this limit has now been abolished, allowing individuals to grow their pension savings without restriction. However, tax-free lump sums remain capped at £268,275, equivalent to 25% of the previous LTA.

Additionally, lump sum death benefits continue to be assessed against this threshold, meaning any excess may still be subject to taxation. While these changes offer greater flexibility for retirement planning, individuals should be mindful of the remaining limits on tax-free withdrawals, as they could still face tax charges on certain pension payments. This shift allows more room for growth in pension savings, but careful planning remains essential to avoid unexpected tax liabilities.

Planning point

The combination of tax relief on contributions, tax-free growth within the fund and the ability to take a tax-free lump sum on retirement makes a pension plan an attractive savings vehicle, the more so since the abolition of the lifetime allowance.

Useful link: Information about pensions and pensioner benefits.

For further information, contact Simone Lyons.

Individual savings accounts

Individual Saving Accounts (ISAs) have Income Tax and CGT advantages.

From April 2024, changes to ISA rules will provide greater flexibility for investors. Currently, individuals can contribute to only one cash ISA, one stocks and shares ISA, and one innovative finance ISA per tax year, but this restriction will be lifted, allowing multiple subscriptions of the same type within the annual allowance.

ISAs remain a tax-efficient way to save, as they are free from UK tax on investment income and capital gains. Those aged 18 to 39 can still invest up to £4,000 per year in a Lifetime ISA, though the overall annual ISA limit remains at £20,000. These updates give savers more freedom to manage their investments while maintaining tax advantages.

Lifetime ISAs

The government adds a 25% bonus to investments of up to £4,000 a year in a lifetime ISA. An individual can use these savings to help buy a first home (but be wary of the property price cap of £450,000) or keep the funds for retirement. A lifetime ISA will be a more attractive approach to retirement saving than a traditional pension for some, or one can, of course, opt for both forms of pension saving.

The decisions can be complex so taking advice is essential. One will incur a lifetime ISA government 25% withdrawal charge if they transfer the funds to a different type of ISA or withdraw the funds before age 60 and they may therefore get back less than they paid into a lifetime ISA.

Junior ISAs

Parents and others can contribute to a Junior ISA for children up to 18 who do not have a child trust fund. The contribution limit is £9,000 in 2024/25.

Planning point

Information about ISAs does not have to be reported on an individual’s tax return and ISAs are effectively inheritable by a surviving husband/wife or civil partner.

Useful link: Financial and market analysis.

For further information, contact Colin Burns.

Use your Inheritance Tax exemptions

Inheritance tax (IHT) planning is generally not related to the tax year end, although this is as good a time as any to review one’s will and ensure their stated wishes are up to date.

There are, however, certain IHT exemptions that are related to the tax year.

• For the 2024/25 tax year, the rules on IHT exemptions for gifts remain unchanged, but careful timing can maximise tax-free giving. Individuals can gift up to £3,000 each tax year without it being subject to IHT. If the exemption was not used in 2023/24, it can be carried forward, allowing up to £6,000 in IHT-free gifts before 6 April 2025. Those who have already used their 2024/25 exemption may benefit from delaying their next gift until after 5 April 2025 to take advantage of the 2025/26 exemption.
• Gifts of up to £250 to any person in any one tax year are exempt. One can use this exemption for any number of different recipients.
• Regular gifts out of excess income can also be exempt, provided certain conditions are met. The amount of excess income determined each tax year, and the gifts must be made from income rather than capital. To qualify for this exemption, the individual must ensure proper documentation to prove that the gifts are indeed made from income and not from their capital. These gifts must be part of the individual’s regular pattern of giving and should not reduce their standard of living. Proper record-keeping is essential to demonstrate that the gifts comply with the IHT exemption criteria.

Useful link: HMRC guide to IHT.

For further information, contact Amal Shah.

Charitable giving

Charities make a difference to millions of lives in the UK and around the world. Whatever cause one cares about, there will be a charity working on it. Remember an individual can get tax relief for any charitable gifts if they make a gift aid declaration.

An individual can make the gift out of their taxed income and the charity can claim back basic rate tax on the value of the gift. Higher and additional rate taxpayers can claim an extra 20% or 25% in relief. Intermediate, higher and top rate taxpayers in Scotland can claim an extra 1%, 22% or 48% in relief.

An individual can obtain both Income Tax and CGT relief on gifts to charities of shares listed on the stock market and certain other investments.

Gifts to charity are free of IHT, so an individual remembering a charity in their will can reduce the total amount of IHT that will be paid on their estate. If at least 10% of an individual’s net estate is left to charity, then the rate of IHT payable on the remainder of their estate will be reduced from 40% to 36%.

Useful link: Information about tax relief when donating to a charity.

For further information, contact Pritesh Patel on ppatel@geraldedelman.com.

Non-domiciled tax

The government is making sweeping changes to the way non-domiciled individuals are taxed, with a new system set to take effect from 6 April 2025.

The long-standing remittance basis, which allowed non-doms to only pay UK tax on foreign income and gains brought into the country, is being scrapped. In its place, a residence-based tax system will ensure that all UK residents are taxed on their worldwide income. However, there’s a silver lining for newcomers—those who haven’t been UK residents for at least ten years, will benefit from a four-year exemption on foreign income and gains.

Another major shift is in IHT, which will now apply to global assets for individuals who have lived in the UK for at least ten of the last twenty years. These changes mark a significant overhaul of the system, aligning the UK more closely with international tax norms, while aiming to create a fairer playing field for all residents.

For further information, contact Amal Shah.

Business Asset Disposal Relief (BADR)

In the 2024 Autumn Budget, the UK government announced significant changes to BADR, affecting entrepreneurs and business owners planning to sell their businesses.

Currently, BADR allows qualifying individuals to pay a reduced CGT rate of 10% on gains up to a £1 million lifetime limit. However, starting from 6 April 2025, this rate will increase to 14%, with a further rise to 18% from 6 April 2026.

These changes mean that business owners considering the disposal of their assets may face higher tax liabilities in the coming years.

For further information, contact Amal Shah.

Property taxes

In the 2024/25 tax year, the government has introduced several property tax reforms impacting homebuyers and investors.

Effective from 31 October 2024, the Stamp Duty Land Tax (SDLT) surcharge on additional properties, including second homes and buy-to-let investments, has increased from 3% to 5%. This change raises the SDLT liability for purchasers of additional properties, potentially affecting investment decisions in the property market.

Additionally, the threshold at which SDLT becomes payable has reverted to £125,000 for standard buyers and £300,000 for first-time buyers as of 1 April 2025, leading to higher tax obligations for many homebuyers. These adjustments aim to balance the housing market and address affordability concerns, particularly for first-time buyers

For further information, contact Amal Shah.

Checklist

• Could an individual transfer income to their partner to minimise higher and top rate taxation next year, to maximise the tax-free savings and dividend income limits, or to avoid losing child benefit?
• Has the individual considered the timing of dividends and bonuses to minimise tax rates?
• Has the individual used their annual CGT exempt amount by making any available disposals before 6 April 2025?
• Has the individual used this year’s ISA allowance before 6 April 2025?
• Is the individual investing enough in their pension (or possibly a lifetime ISA) if they wish to, or have to, retire earlier than state pension age, which is likely to keep going up?
• If the individual is aged over 55, have they taken advice about the options for drawing their pension savings?
• Has the individual made gifts to use their annual IHT allowances?
• Is the individual considering any charitable gifts now or in their will?

Year-end tax planning advice for businesses

Corporate Tax

Businesses operating in the UK need to stay informed about Corporation Tax rates and planning strategies to manage their tax liabilities efficiently.

With the 2025/26 financial year approaching, understanding the applicable rates, available reliefs, and key deadlines is crucial for effective financial planning.

Corporate Tax rates:

• Main Corporation Tax rate (25%): Applies to companies with profits exceeding £250,000.
• Small profits rate (19%): Available for businesses earning £50,000 or less.
• Marginal relief:
  • Applies to companies with profits between £50,001 and £250,000.
  • Gradually reduces the effective tax rate below 25% as profits increase.

The relief gradually decreases as profits approach the £250,000 threshold. Additionally, if a company has associated businesses or operates with a shorter accounting period, the profit thresholds are proportionately reduced.

In the 2024 Autumn Budget, the government announced several significant changes to Corporation Tax, effective from 6 April 2025:

Increase in Corporation Tax Rate: The main Corporation Tax rate will rise from 25% to 27% for companies with profits exceeding £250,000. This adjustment aims to generate additional revenue to support public services and infrastructure projects.

Payment deadlines:

• Small companies: Corporation Tax is due nine months and one day after the end of the accounting period.
• Large companies: Businesses with annual profits exceeding £1.5 million must pay Corporation Tax in quarterly instalments, starting six months and 13 days after the beginning of the accounting period.
• Very large companies: Companies with annual profits over £20 million have even earlier instalment deadlines.

For further information, contact Paul Twydell.

Capital Allowances

In the 2024 Autumn Budget, the UK government introduced several significant changes to capital allowances, effective from 6 April 2025:

• Enhanced Capital Allowances in Freeports: Businesses operating within designated Freeports can now claim 100% first-year allowances on qualifying plant and machinery. This initiative aims to stimulate investment and economic activity in these areas.
• Annual Investment Allowance (AIA): The AIA limit remains at £1 million, allowing businesses to deduct the full cost of qualifying plant and machinery from their taxable profits in the year of purchase. This measure continues to support businesses in managing their cash flow and investment decisions.
• First-Year Allowances (FYA): The government has introduced a 100% FYA on certain new, unused plant and machinery, including long-life assets and integral features of buildings, purchased from 6 April 2025. This change is designed to encourage businesses to invest in modern and efficient equipment.

These adjustments reflect the government’s commitment to fostering a competitive business environment and encouraging investment in sustainable and efficient technologies.

For further information, contact Paul Attridge.

Research and Development (R&D)

In the 2024 Autumn Budget, the government announced significant changes to the Research and Development (R&D) tax reliefs, which will take effect from 1 April, 2024.

One of the key reforms is the introduction of a Merged Scheme, consolidating the existing R&D tax relief schemes for Small and Medium-sized Enterprises (SMEs) and the R&D Expenditure Credit (RDEC) into a single, unified system. This simplification aims to create consistency across businesses of all sizes.

Additionally, a new Enhanced R&D Intensive Support (ERIS) will provide higher rates of relief for companies where R&D activities account for at least 30% of total expenditure, offering targeted support for businesses heavily invested in innovation. The definition of qualifying R&D activities has also been expanded to include areas such as pure mathematics, data, and cloud computing costs, making the relief more accessible to a wider range of businesses.

Lastly, SMEs with R&D expenditure comprising at least 40% of total costs will be eligible for a higher rate of relief, allowing loss-making businesses to benefit from a payable credit of 14.5% for qualifying R&D expenditure.

These changes are designed to streamline the process, encourage more businesses to invest in R&D, and foster innovation across various industries.

For further information, contact Leo French.

Checklist

• Has the entity reviewed their Corporation Tax position to ensure they are taking advantage of available allowances, reliefs, and exemptions for the 2024/25 tax year?
• Has the entity considered the timing of capital investments and whether to accelerate any purchases before 6 April 2025 to maximise capital allowances or the Annual Investment Allowance (AIA)?
• Is the entity making the most of R&D tax reliefs by ensuring that their R&D activities are well-documented and meet the necessary criteria for claiming tax credits?
• Has the entity reviewed their employee remuneration structure, including salaries, dividends, and bonuses, to optimise tax efficiency and take advantage of lower rates for dividends or allowable bonus payments?
• Has the entity made provisions for the upcoming increase in Corporation Tax rates and considered how these changes will affect their business’s tax liability?
• Has the entity considered transferring ownership of assets or shares to reduce potential future tax liabilities, such as through gifting or setting up a family trust?
• Is the entity ensuring their business is compliant with the new rules on environmental investments, especially if they plan to invest in green technologies or sustainable practices that may qualify for enhanced capital allowances?
• Has the entity utilised any available tax reliefs for investments in Freeports or specific regions to take advantage of reduced tax rates and other incentives?
• Has the entity planned their business’s cash flow carefully to ensure timely Corporation Tax payments and avoid interest or penalties from HMRC?
• Is the entity considering making charitable donations through their business, taking advantage of charitable tax reliefs either now or through their will to reduce their IHT exposure?

Summary

The UK tax landscape for the 2024/25 tax year has undergone several significant changes affecting both individuals and businesses.

For individuals:

• The personal allowance remains at £12,570, with higher and additional rate tax bands frozen until 2028.
• CGT rates have increased, aligning them with residential property rates: the basic rate rises from 10% to 18%, and the higher rate from 20% to 24%, effective from 30 October 2024.
• Additionally, the Investors’ Relief lifetime limit has been reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024.

For businesses:

• Businesses are facing increased operational costs due to a 1.2 percentage point rise in employers’ National Insurance contributions, set to generate an estimated £25 billion annually by the end of the decade. This change has led to concerns about its impact on recruitment, pricing, and investment, with 82% of businesses indicating they will reconsider their plans in response.
• The abolition of non-domiciled status starting 6 April 2025 has raised concerns among financial sector professionals about its potential to drive international talent out of the UK. Despite these concerns, the government remains firm on its stance, viewing the financial services sector as crucial to the economy.
• The main rate of Corporation Tax has been set at 25% for the 2024/25 tax year, with a small profits rate of 19% applying to companies with profits up to £50,000.
• Capital allowances have been maintained, allowing businesses to deduct the cost of certain capital expenditures from their taxable profits.
• The Research and Development (R&D) tax relief scheme has been restructured, with a flat rate of 20% now applicable to all qualifying R&D expenditure, aiming to simplify the process and encourage innovation.

In summary, the 2024/25 tax changes reflect the government’s efforts to increase revenue through higher taxes on capital gains and National Insurance contributions, while also implementing significant reforms to the taxation of non-UK domiciled individuals.

These measures are expected to have a substantial impact on both individual taxpayers and businesses across the UK, therefore effective tax planning is essential to ensure compliance and efficiency.

If you have any questions regarding the planning points covered in this guide, please contact our expert tax advisers today.