What is the tax year in the UK?

What is the tax year?

Whether you’re new to making longer-term plans for your finances or you’ve been investing your money for a while, knowing what the tax year is and how it works is important. This is because the end of the tax year can give you the perfect opportunity to take advantage of tax-free savings and investments.

We’ve created a guide to help you find out how the tax year can benefit you as an investor.

When does the tax year start and end?

The UK tax year runs from 6 April to 5 April the following year. Therefore, the current 2024/25 tax year started on 6 April 2024 and finishes on 5 April 2025.

This differs from the timings in a lot of other countries, which tend to run from the standard January to December, with the new tax year beginning as the new year itself gets underway.

Why does the tax year run from April to April in the UK?

The tax year dates in the UK have fallen in April since 1800. However, its origins date to medieval times. The New Year in England and Ireland used to be based on the Julian calendar, starting on 25 March, also known as ‘Lady Day’.

The Julian calendar had 11 months of 30 or 31 days, with February usually having 28 days and 29 on a leap year. As this didn’t match up exactly with the solar calendar, there were discrepancies and, by the 1700s, England was 11 days behind the solar calendar. In 1752, the country switched to the Gregorian calendar in order to address the time lag. This switch also meant that the start of the new year – and the start of the new tax year – would be 11 days later, on 5 April.

The decision was made to move this date forward by an extra day to 6 April in 1800 to account for the leap year and this new year date has remained the start of our tax year dates ever since.

Why is the tax year important for investing?

There is an important link between the end of the tax year and investments. Contributions to certain investment and savings products are subject to an annual allowance. These allowances reset after the 5 April deadline. Carry forward, however, allows you to make use of any annual allowance that you might not have used during the three previous tax years,

You can carry forward unused annual allowance from an earlier tax year as long as you were a member of a registered Pension scheme in that tax year.

What investment products have annual allowances?

There are several products that benefit from annual allowances:

• ISAs: These are a major example of an investment product that has allowances set by the government. The annual allowances for ISAs vary by type. For example, if you have a Stocks and Shares ISA(¹), this account offers a range of investment options while protecting your returns from both income tax and capital gains tax.

However, this is subject to an annual allowance. For the current tax year to 5 April 2025, the allowance stands at £20,000 and it’s the maximum amount an individual can invest across all types of ISAs, including Cash ISAs and Innovative Finance ISAs. If a portion of this isn’t used, the allowance is lost and reset to meet the criteria set by the government for the next tax year.

• Pensions: Total pension contributions are subject to the annual allowance. This allowance applies to all personal contributions, company/employer contributions, self-employed contributions and contributions for the individual paid by a third party. The annual allowance is currently £60,000(²).

You’ll pay tax if you go above the annual allowance in the tax year. Tax relief is limited to contributions up to the higher of £3,600 a tax year or 100% of relevant UK earnings, subject to the annual allowance. Investment income, property rental income and dividends don’t count as relevant UK earnings. 

General Investment Accounts (³) (GIAs) don’t have an annual allowance and these are better suited for use after you’ve used your tax-free allowances. It may be worth moving any money from a GIA to an ISA to protect your money from tax returns. However, you may wish to check if there are any charges associated with opening or transferring to an ISA before taking any further action.

When are taxes paid on investments?

It’s worth knowing when tax might apply to the investments you have. Any profits you make from investments are subject to tax. The exception is if you are trading within an ISA, which has the wrapper in place to protect your investments from tax. The amount of tax you pay on other types of investments depends on your personal tax situation and how much profit you’ve made within the tax year.

Taxes you might have to pay on investments include:

Income tax

If you receive income through interest payments interest payments, you might need to pay income tax. If you earn any money through wages, interest or your pension, this is tax-free up to your personal allowance of £12,570 per year.

If you earn money through wages, interest or your Pension, this is tax-free up to your personal allowance of £12,570.

Additionally, basic rate taxpayers have a tax-free personal savings allowance of £1,000. Higher-rate taxpayers have an allowance of £500. There’s no tax-free personal savings allowance for additional rate taxpayers.

Dividend tax

If you receive money from share dividends, you might have to pay dividend tax if it doesn’t fall within your personal allowance, plus the tax-free dividend allowance (⁴) of £500.

Capital gains tax

You pay capital gains tax (CGT) on the profit (gains) you make when you sell any investments that have increased in value over time, such as stocks and shares or a second home.

Everyone has an annual CGT allowance. You can make gains up to this threshold without having to pay CGT. The allowance is £3,000 for 2024/25. (⁵) Using available tax wrappers, such as ISAs, may shield you from paying this tax.

Important points about the end of the tax year

To make sure you’re in a good position when the end of the tax year comes around, it’s important that you know what to do to keep your investments in order.

What should I do before tax year end?

Here’s a checklist to help you make the most of your allowances before tax year end:

• Make the most of your ISA allowance
• Make the most of your CGT allowance
• Make the most of your dividend allowance
• Make the most of your personal savings allowance
• Check your tax code is correct

What happens at the end of the tax year?

After the 5 April deadline, the new tax year begins and your allowances reset. This means you can continue investing in the same ISAs from the previous year. You can also open new ISAs if you want to. Since the start of the 2024/25 tax year, there’s no limit on the number of ISAs you can open with different providers – although a limit still applies to Lifetime ISAs.

After the 5th April deadline, the new tax year begins and your allowances reset. This means you can continue investing in the same ISAs from the previous year.

What happens if I miss the end of the tax year deadline?

Some tax allowances reset at the end of the tax year, so any unused portion of your allowance can’t be used in the new tax year. If you’re putting money into an ISA, Lifetime ISA or Junior ISA, you may want to do this before the deadline.

Pensions are the exception as you may be able to carry forward some of your unused pension allowance into the new tax year. It’s worth checking this information with an experienced financial adviser(⁶) who can help you with your investment portfolio. (⁷)

How True Potential can help you invest

If you’d like to find out more about how to make the most of your investments in time for the end of the tax year, please get in touch.(⁸)

Our team of financial advisers are skilled in planning investment portfolios and can offer guidance and information that will help you maximise the allowances available.

Sources

1 /investments/stocks-shares-isa/

2 /investments/personal-pension/

3 /investments/general-investment-account/

4 https://www.gov.uk/tax-on-dividends

5 https://www.gov.uk/capital-gains-tax/allowances

6 /financial-advice/

7 /investments/

8 /contact-us/