How will the Autumn Budget affect tax year end 2025?

Tax year end is a crucial period of the financial calendar. Maximising your annual tax allowances and reliefs, many of which reset on 6 April every year, is key when it comes to building and preserving wealth.

As governments regularly tinker with the tax system, it’s important to stay on top of things. A decision that was savvy 12 months ago might prove costly this time around.

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Measures announced at last year’s Autumn Budget offer a pertinent example. Labour warned taxes would go up, and this came to pass. Some, such as capital gains tax (CGT), have increased already, employer national insurance (NI) will rise in April, while the sweeping reforms to inheritance tax (IHT) are scheduled for 2026 and 2027. These changes may heavily influence your tax-planning strategy both now and in the future.

Here, I explore the key considerations for tax year end 2024-25 with a particular focus on the recent Budget changes.

Beat the capital gains tax hike

Reeves’ decision to jack up the rates of capital gains tax (CGT) drew little surprise. The rates for sales of shares and other assets have now been equalised with residential property at 18% and 24% for basic and higher-rate taxpayers, respectively, up from 10% and 20%.

This was less than ideal for investors, but it could’ve been worse. According to pre-Budget rumours, a top rate around the 40% mark was being floated.

Still, it means you could pay more tax on investments you sell outside of pensions and individual savings accounts (ISA). Maximising these tax wrappers has therefore become even more important as 5 April edges into view. You can pay up to £20,000 into ISAs every year and shield any gains and income from HMRC, while the annual pension allowance is £60,000 or 100% of earnings, whichever is lower.

However, if you earn more than £260,000, or have already started to draw flexible and taxable income from your pensions, you might be restricted to just £10,000. You can pay in more, but you won’t get upfront tax relief.

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There were fears Reeves might slash the CGT exemption – the profits you can realise from selling stuff every year, tax free – but this will remain at £3,000 from April 2025. The allowance was a heady £12,300 in 2023, so it’s not as generous as before. But making the most of it every year is a simple way to keep more of your investment gains.

A useful tactic here is something called Bed & ISA: simply put, this is where you sell shares outside of tax wrappers and reinvest them in an ISA. This upshot is that the taxman can’t touch any future gains or dividends. Just make sure any profit for the year doesn’t exceed £3,000.

By using the CGT exemption, a basic-rate taxpayer can save £600, while someone in the higher or additional rates could save £1,200. If you use it every year, the tax savings can really rack up. Importantly, any unused amount can’t be rolled over.

For those married or in civil partnership, the exemption doubles up to £6,000. Using both may require some strategic rejigging if your investments are held in one spouse’s name. The same applies to the dividend allowance, which allows you to earn £500 a year in dividends tax free.The good news is that transferring assets between married couples and civil partners is CGT exempt. 

Watch out for savings interest

In a well-received announcement at last year’s final fiscal event, Reeves announced the freeze on tax thresholds will end in 2029. While this is good news, it means that fiscal drag, as it’s known, will continue to eat away at our finances for a few more years as incomes creep into higher tax bands.

We were reminded last week of the punishing impact of stealth tax rises. Shawbrook Bank warned that more than six million accounts are set to breach the personal savings allowance, an 800,000 jump from last year.

The savings allowance enables you to earn a certain amount of interest every year tax free. Basic-rate and higher-rate taxpayers get allowances of £1,000 and £500, respectively, and if you earn more than £125,140 a year, you pay tax on all your savings. The combination of these limits being frozen since 2016 and higher interest rates is resulting in more people paying tax on their cash savings.

This provides another example of why using ISAs and pensions is so important. If you’ve maxed out your tax wrappers, note that premium bond prizes are tax free (although they aren’t guaranteed) and consider switching savings to a lower-earning spouse or civil partner if that option is available.

IHT planning enters new territory

The tax that received the roughest treatment at last year’s Autumn Budget was IHT. Rachel Reeves unveiled massive reforms to pensions, businesses, farms and AIM stocks that will throw a spanner into the gears of even the best-laid estate planning strategies.

The chancellor also extended the freeze on tax-free lifetime limits - the nil rate band and residence nil rate band - until 2030. This means that as asset prices rise, more estates will either trip into the IHT net or face bigger tax bills. At a flat rate of 40% on anything that exceeds your tax-free allowance, the impact of IHT can be significant.

Reeves’ IHT proposals are yet to take effect but for many families and businesses, planning for their impact starts now. The reforms to business relief, agricultural relief and AIM shares all come in from April 2026, while the pension change is scheduled for the following year.

To refresh your mind about what’s going on, business relief and agricultural, which at present can offer 100% exemption from IHT, will only be tax-free for the first £1 million of any estate, with 50% relief available on anything above.

With regards to AIM shares, you’ll only get 50% relief on eligible companies when held for two years, instead of 100%. We should, however, remember that provided you’re happy with the volatility, AIM shares remain more IHT efficient than many other investments

Pensions, which are currently considered outside the estate, will be brought into the IHT net from April 2027. Under initial proposals, any unspent pensions will be added to other assets, and IHT could be charged at 40%. If you die after age 75, the beneficiary will pay income tax on withdrawals, too – a potential tax double whammy.

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With these changes coming down the track, should you take a different approach to tax year end than usual? The answer is maybe, but not necessarily. It depends on your personal circumstances and goals.

For instance, if you’re still working and fear you still haven’t saved enough for retirement, the IHT changes to pensions should make no difference. Pensions were primarily designed as retirement savings vehicle, to replace earnings once you reach old age. That function remains.

What’s more, Reeves in October 2025 left the other generous tax advantages of pensions untouched.

Putting money into a pension, such as a self-invested personal pension (SIPP) between now and 5 April is a great way to reduce this year’s tax bill. On what you pay into a SIPP, you’ll get an upfront boost of 25% in the form of a government top up, and those who pay 40% or 45% tax can claim back extra via self-assessment. Pension contributions can also help to reduce your “adjusted net income” to avoid the child benefit charge or swerve the 60% tax trap, which applies when earnings breach £100,000.

Further perks include your pension investments being exempt from CGT and dividend tax, and you can withdraw 25% (to a max of £268,275) of your total savings tax free when the time comes to access them.

However, anyone who previously bolstered their pension savings to harness the IHT exemption may want to consider alternatives. Beefing up younger family members’ pensions, who can get upfront income tax relief at their marginal rate on what you pay in, could be a plan B.

If you’re thinking about this approach, or making any gifts before 5 April for that matter, it’s worth getting a good grasp of the rules.

You can give way £3,000 a year tax free and bring forward £3,000 from last year if unused, meaning a couple could potentially shift £12,000 outside their estate immediately. Parents and grandparents can each make marriage gifts of £5,000 and £2,500, respectively.

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A further rule is that you can potentially give away as much of your surplus income as you like. To be deemed allowable, the gifts must be regular in nature and shouldn’t affect your standard of living now or in the future.

Given the importance to get this right, especially if the gifts are funded from SIPP withdrawals, it’s worth getting expert tax advice to make sure you satisfy the requirements. Either way, diligent record-keeping is key.

For any gifts not covered by your allowances, including those to trusts, you may have to survive years before it becomes IHT free.

Carefully consider your retirement withdrawal strategy

Current guidance suggests you should drain ISAs first and pensions second, to harness the latter’s IHT exemption. However, this order may now switch around, especially with the prospect of a double tax (IHT and income tax) on pension savings if death occurs after age 75.

But before you make any moves, we should note the rules on pensions and IHT are yet to be finalised. A technical consultation on the proposal closed on 22 January; the outcomes will be revealed in due course.

In the meantime, pension providers, including ii, wealth managers and industry bodies have made their views on the policy clear, fiercely opposing what’s been put forward and lobbying for alternatives.

So, why is this relevant to tax year end? Those seeking to get ahead of the game and deplete SIPP holdings to either spend or gift will almost certainly want to keep their total income for the 2024-25 tax year under £50,270.

This is an area that must be carefully navigated, as anything that exceeds the higher-rate band is taxed at a hefty 40%, wiping out any IHT saving, and ending the 2024-25 tax year on a rather painful note.