Maximising Efficiency Before April 2025
With the 2023/24 tax filing deadline behind us, it’s time for individuals and business owners to focus on proactive tax planning for the 2024/25 tax year. Given the upcoming changes—such as the rise in employers’ National Insurance (NI), the abolition of Furnished Holiday Let (FHL) tax benefits, and the reduction of Business Asset Disposal Relief (BADR)—taking a big-picture approach to year-end tax planning is essential.
This guide outlines key tax-saving strategies for individuals and owner-managed businesses ahead of 5 April 2025.
1. Profit Extraction for Business Owners
For company directors and owner-managers, the most tax-efficient way to extract profits is often a combination of salary and dividends.
Optimising Salary vs. Dividends
Many business owners take a small salary to maintain National Insurance (NI) benefits and withdraw the remainder as dividends to minimise overall tax liabilities.
Here’s a comparison for a company with £60,000 in available profits:
| Salary Level | £9,100 | £12,570 |
|---|---|---|
| Primary Class 1 NI (Employee) | £0 | £0 |
| Secondary Class 1 NI (Employer) | £0 | (£479) |
| Corporation Tax | (£9,739) | (£8,921) |
| Dividend Paid | £41,161 | £38,030 |
| Total Tax/NI Payable | £12,993 | £12,766 |
Advice: The £12,570 salary option offers slightly more savings, making it the preferred strategy.
Bonus Payments Before April 2025
- Employer NI is increasing to 15% from April 2025, making bonus payments more expensive.
- If a business owner needs additional short-term cash, it is more tax-efficient to pay bonuses before April 2025 to avoid the higher NI rates.
Alternative Short-Term Cash Strategies
- Instead of a bonus, the company can make an advance on expenses or a director’s loan and deduct it from future dividends.
Other Profit Extraction Considerations
- Splitting income with a spouse or civil partner can reduce tax liabilities by utilising multiple allowances and basic rate tax bands.
- Retaining profits in the company rather than taking full dividends can help smooth fluctuations in future income or allow for tax-efficient withdrawal upon retirement.
- Employer pension contributions offer tax relief on corporation tax and are a great way to save for retirement while reducing tax liability.
- Using undrawn profits to invest within the company (e.g., in shares or property) can be beneficial for long-term growth.
2. Capital Gains Tax (CGT) Planning
With the CGT annual exemption slashed to £3,000 (down from £12,300 two years ago) and higher CGT rates (18% and 24%) now in place, taxpayers should take advantage of their exemption before 5 April 2025.
Key CGT Strategies
Sell assets strategically to use the £3,000 exemption and reduce taxable gains.
Avoid “bed and breakfast” anti-avoidance rules—a spouse or civil partner can repurchase the same shares without falling foul of these rules.
Plan for the upcoming increase in Business Asset Disposal Relief (BADR) rates:
- BADR is increasing to 14% from April 2025 and 18% from April 2026.
- Business owners looking to sell their business or qualifying shares may want to accelerate the sale before these increases take effect.
If clients have deferred gains through the Enterprise Investment Scheme (EIS), they may wish to trigger gains before April 2025 or 2026 to benefit from the current lower BADR rates.
Pro Advice:
Ensure the EIS termination date (usually the third anniversary of share issue) has passed before triggering disposal. Otherwise, clients may lose the CGT exemption on EIS shares.
3. Furnished Holiday Lettings (FHL) Changes: Key Considerations
From April 2025, FHL tax benefits (such as capital allowances, BADR, and rollover relief) will be abolished. This means landlords need to act fast to take advantage of the existing reliefs before they disappear.
Key Actions for FHL Landlords Before April 2025
Cease FHL activity before 5 April 2025 to qualify for BADR within the three-year window.
Sell qualifying FHL properties before April 2025 to utilise rollover relief on replacement assets.
Gift FHL properties under holdover relief (Section 165 of TCGA 1992) rather than Section 260 to preserve eligibility for Private Residence Relief (PRR) if the recipient later lives in the property.
Pro Tip: Parents could gift property to their children using holdover relief, allowing the child to benefit from PRR in the future.
4. Inheritance Tax (IHT) Planning
With proposed changes reducing Business Property Relief (BPR) on AIM-listed shares to 50%, clients should consider restructuring their investment portfolios to retain 100% IHT relief.
Key IHT Strategies Before April 2025
Switch AIM-listed shares to unlisted shares to maintain 100% BPR eligibility.
Ensure shares are held for at least two years before claiming BPR—unless the new shares qualify as replacement property (where the AIM shares’ holding period counts toward the new shares).
Use the £3,000 annual IHT exemption to make tax-free gifts before the end of the tax year.
Consider regular gifting to reduce taxable estate exposure under the seven-year rule.
Final Thoughts: Preparing for Tax Year-End 2024/25
With significant tax changes coming in April 2025, taxpayers and business owners need to act now to protect their finances and optimise tax efficiency.
Key Actions Before 5 April 2025
✔ Review salary vs. dividends strategy to determine the most tax-efficient profit extraction method.
✔ Plan bonus payments before April 2025 to avoid the higher NI rate.
✔ Maximise the CGT exemption (£3,000) by disposing of assets tax-efficiently.
✔ Act before FHL tax benefits disappear, considering sales, rollovers, or holdover relief gifting.
✔ Consider IHT-efficient gifting strategies to reduce estate tax liabilities.
How Merranti Accounting Can Help
Navigating tax planning and upcoming legislative changes can be complex, but early preparation ensures maximum tax savings.
At Merranti Accounting, we specialise in tailored tax planning strategies for individuals and businesses. Contact us today to:
Optimise profit extraction for your business
Plan capital gains efficiently
Navigate FHL tax changes before April 2025
Reduce IHT liabilities through effective estate planning
Act now to take full advantage of available tax reliefs before they change—speak to our tax
