Tax year end: 4 essential financial tips for retirees
The end of the tax year is on the seemingly random 5th of April. The 25th of every third month used to be very important, like December 25th.
March 25th was Lady Day, when the Angel Gabriel told Mary the good news. It marked the start of new things, including the financial year.
Julius Caesar’s calendar did not work well. The equinox kept drifting back. So, we noticed Pope Gregory’s new calendar. In 1797, we lost 11 days. As a result, 25th March became 5th April!
That’s the story of how the tax year came to be. But enough about calendars and back to money. What do you need to do with your finances before the 5th of April?
The immediate pre- and post-retirement years are typically when the key decisions around pensions are made. It is a complicated process, with decisions such as whether to remain invested in stock markets through a drawdown product or buying a guaranteed income for life with an annuity. The consequences of a bad decision can be significant. Many people choose to seek general financial advice. This can also be useful to help younger family members or undertake inheritance planning.
Expert Sam Secomb says at this time of year, the most important thing is to plan ahead - so you don't end up scrambling to use up any allowances in the final days before they run out.
I think the biggest difference between how the savvy investors manage the end of the tax year compared to others is that they actually focus on using the available tax allowances on the first day of the new tax year. Rather than the stress of scrabbling around trying to use the allowances before they expire at the end of a tax year, they’ve been invested for a year already and are just waiting for 6th April to arrive so they can go again! It can add up to a lot of extra loot in ISA and pension pots too because more of your money stays in your investment rather than gets lost to tax.
If you're retired, I have compiled some top tips for you for the end of the tax year. Here are four things to consider this year:
1. 1. Minimise tax liability on Pension withdrawals
Pensioners who choose to take all of their money out in one hit can get clobbered with a chunky tax bill. Don’t let your mistrust of the financial industry make you rush to get your hands on your pension, without checking your tax position first.
The general rule is that we can take 25% of our pension tax-free. But the remaining 75% will be taxed as earnings. Having a high income in one year has financial effects. You will pay a lot of tax! It is usually smarter to take out money slowly.
And finally, for those on any state benefits, taking a large lump sum from a pension could impact this, now or in the future.
2. Set up a Junior ISA for the grandkids or even an ISA for the adult kids
If you have grandchildren and would like to set up some savings for them, the Junior ISA is worth a look. It has to be a parent who sets it up initially, but once it is open, anyone can pay into this account, and the maximum amount is £9,000 per child per year. See our 2025 Best Buy Junior ISAs to see which providers we think are the best all-rounders.
Many retirees are also concerned about helping their own adult children with saving money and managing the rising cost of living. If your child is under 40 and saving for a first property, then the Lifetime ISA is an interesting account with nice government top-ups (but some penalties at play too, so do your reading).
Or if your child isn’t yet an investor, but you want to support them to set up a Stocks & Shares ISA, then have a look at ready-made portfolios. These are typically low-cost, easy to manage, and a good starting point for less experienced investors. You can check out the top-performing ready-made portfolios of the last three months here.
3. Don't forget about Inheritance Tax
Did you know that the government is on track to collect £8 billion in Inheritance Tax in the 2024- 25 tax year? One of the more popular ways to reduce your IHT bill is to start giving away parts of your estate before you die, and seven is the magic number.
If you live for seven years after giving the gift, then it won’t be included in your estate and, therefore won’t be subject to IHT. If you die before the seven years are up, then there might be IHT to pay, but the gifts will be taxed using a sliding scale. You can also give away £3,000 per year, no questions asked.
4. Managing drawdown
We now have more flexibility than ever on how we structure and take our pensions. We can choose a mix of annuities and drawdown.
An annuity gives a fixed annual payment for a lump sum of cash. Drawdown is a pension where the money stays invested. You can take out amounts each year.
A benefit of drawdown is that your money remains largely invested in the stock market so it can continue to grow. But as is always the case with investing, this isn’t guaranteed.
As a very rough rule of thumb, experts suggest the ‘4% rule’. This method means taking 4% of your total retirement savings in the first year.
You will increase this amount each year to match inflation. This plan should last you about 30 years. So, for example, if you have £100,000 in a drawdown pension account, you could take £4,000 every year (plus a bit extra for inflation) and that money would keep you going for 30 years at this level of withdrawal.
The Government-backed Money and Pensions Service has a helpful section on pensions for further reading, including an annuity comparison tool that helps you browse the market for the best deals.
