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Tax Year

Also known as: Fiscal Year, UK Tax Year

Definition

The tax year is the 12-month period from 6 April to 5 April that HMRC uses to assess your tax liability and reset annual allowances and exemptions.

Understanding the tax year is essential for estate planning because gift exemptions like the £3,000 annual exemption renew each year on 6 April, creating strategic planning opportunities.

What Does Tax Year Mean?

The UK tax year runs from 6 April to 5 April of the following year, not the calendar year. Also called the fiscal year for personal taxation, it's the standardised period HMRC uses to assess Income Tax, Capital Gains Tax, and Inheritance Tax exemptions. When HMRC refers to "the 2024/25 tax year," they mean 6 April 2024 to 5 April 2025. This differs from the government's financial year (1 April to 31 March) and company accounting years, which can be any 12-month period. The unusual April dates originate from the Calendar (New Style) Act 1750, which moved Britain from the Julian to Gregorian calendar in 1752. To preserve tax revenue, the Treasury extended the tax year by 11 days, shifting it from 25 March to 5 April, with a further one-day adjustment in 1800 creating the 6 April start date we use today.

For estate planning, the tax year creates natural planning windows. Annual gift exemptions of £3,000 reset each tax year on 6 April, and any unused exemption can be carried forward one tax year only. Emma gives her daughter £3,000 on 4 April 2025 (using the 2024/25 exemption) and another £3,000 on 8 April 2025 (using the 2025/26 exemption). Both gifts are fully exempt from inheritance tax because they fall in different tax years, allowing Emma to give £6,000 tax-free within days. James didn't use his £3,000 annual exemption in 2023/24. In October 2024 (during the 2024/25 tax year), he gives his son £6,000—the current year's £3,000 plus the previous year's unused £3,000 carried forward. Both exemptions are used immediately.

The seven-year rule for potentially exempt transfers runs from the date of each gift, not the tax year boundary, but organizing gift records by tax year makes tracking easier. IHT nil-rate bands and residence nil-rate bands are set per tax year and can change with government budgets. The small gifts exemption (£250 per recipient) resets each tax year, while normal expenditure out of income must follow a regular pattern tracked across tax years. During probate, any income generated by the estate is taxed according to the tax year in which it arises, meaning executors must track estate income by tax year and file returns by 31 January following the end of each relevant tax year.

Strategic timing around tax year boundaries maximizes exemptions. David wants to help his son with a house deposit. By making a £3,000 gift on 3 April 2025 and another £3,000 on 7 April 2025, he uses two separate tax years' exemptions, giving £6,000 entirely tax-free within four days. Record-keeping organized by tax year simplifies estate planning discussions with solicitors and ensures all exemptions are tracked properly for future inheritance tax calculations.

Common Questions

"When does the UK tax year start and end?" The UK tax year runs from 6 April of one year to 5 April of the following year. For example, the 2024/25 tax year started on 6 April 2024 and ends on 5 April 2025. Tax allowances and exemptions—including the £3,000 annual gift exemption—reset on 6 April each year.

"Can I give my children £3,000 twice if I do it before and after 6 April?" Yes. If you make a £3,000 gift before 5 April (using the current tax year's exemption) and another £3,000 on or after 6 April (using the new tax year's exemption), both gifts are fully exempt from inheritance tax. This legitimate strategy maximizes your annual gift allowance.

"Why does the UK tax year start on 6 April?" The 6 April start date originates from calendar reform in 1752 when Britain switched from the Julian to Gregorian calendar. To ensure the Treasury didn't lose tax revenue, the tax year was extended by 11 days from 25 March to 5 April, then adjusted by one more day in 1800 to 6 April.

Common Misconceptions

Myth: The tax year runs from January to December like the calendar year.

Reality: The UK tax year runs from 6 April to 5 April, not the calendar year. When HMRC refers to "the 2024/25 tax year," they mean 6 April 2024 to 5 April 2025. Tax allowances and exemptions reset on 6 April each year, not 1 January.

Myth: If I don't use my £3,000 annual gift exemption, I lose it forever.

Reality: You can carry forward one year's unused annual gift exemption to the next tax year, but only for one year. If you didn't use your £3,000 exemption in 2023/24, you can use both that exemption and the 2024/25 exemption (£6,000 total) during the 2024/25 tax year. You must use the oldest exemption first.

Understanding Tax Year connects to these related concepts:

  • HMRC: HM Revenue & Customs administers the tax year system and collects taxes based on it.
  • Inheritance Tax (IHT): The tax year determines when IHT thresholds, exemptions, and allowances apply and reset.
  • Annual Exemption: This £3,000 exemption resets each tax year on 6 April and can be carried forward one tax year if unused.
  • Self-Assessment: The system individuals use to report income, gains, and taxable events within a tax year, with returns due by 31 January.
  • Understanding Inheritance Tax in the UK (2025): Explains IHT thresholds and exemptions that reset according to the tax year.
  • How to Reduce Inheritance Tax Legally in the UK: Covers tax planning strategies that use tax year timing to maximize IHT savings.
  • The 7-Year Rule for Inheritance Tax Gifts Explained: Shows how organizing gift records by tax year helps track potentially exempt transfers.
  • Getting Married? Why You Need to Make a New Will: Discusses how marriage affects tax planning and strategic gift timing within tax years.

Need Help with Your Will?

Understanding the tax year helps you make strategic gifting decisions that reduce inheritance tax. WUHLD's guided platform helps you create a comprehensive estate plan that considers lifetime gifting opportunities.

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Legal Disclaimer: This glossary entry provides general information about UK legal terminology and does not constitute legal advice. For advice specific to your situation, consult a qualified solicitor.