Everyone should think about and prepare for their financial future from a young age, but as a professional athlete, it can be especially important for you to do so.
Athletes normally have shorter careers that occur earlier in life. Additionally, the earnings of an athlete can change drastically from year to year. With these regular changes, it can be important to assess your financial plan on a recurring basis.
The 2024/25 tax year started on 6 April, a great opportunity to look ahead and consider your financial plan for the next 12 months and beyond. Furthermore, the government has made several changes to tax and savings rules this year that could affect you, so it is important to be aware of these, too.
Read on to discover five ways you can get ahead with your planning in the 2024/25 tax year.
1. Consider your long-term goals
It is important to determine your long-term goals now so that you can put a financial plan in place that enables you to achieve them. So, a new tax year presents an opportunity to check in on your plan and see whether you are on track to reach your targets.
One major thing to consider for you as a professional athlete is when you will retire – especially as you will likely have two retirements.
Your athletic career will be much shorter than the average worker, so it can be very important that you have a plan in place for this first retirement. This can enable you to be financially comfortable for your entire life, even after you stop playing sport professionally.
Meanwhile, it is just as important to plan for a second career and the additional retirement you may have from this, too.
Working with a financial planner can help you put an effective plan in place to achieve your goals around these two retirements.
2. Ensure you are making the most of your ISA allowance
Individual Savings Accounts, more commonly known as ISAs, are a type of tax-efficient saving or investment account. Any interest or investment returns you generate within an ISA are free from Income Tax, Dividend Tax, and Capital Gains Tax (CGT), making them effective for reducing your tax bill.
The government has left the ISA allowance – the maximum amount of money you can pay into ISAs in a single tax year – untouched at £20,000 in the 2024/25 tax year. However, it has made a few changes to how ISAs work.
You can now pay into more than one ISA of the same type within the same tax year, which enables you to make the most of different products and rates available from different ISA providers.
For example, you could take advantage of Cash ISAs with better rates as and when they become available without having to close an existing account you already paid into in a tax year, or waiting until the next tax year.
In addition, in the 2024 Spring Budget, chancellor Jeremy Hunt announced plans for a new “British ISA”, which will allow you to invest an extra £5,000 into UK-focused assets tax-efficiently. The British ISA has not been launched yet but, if and when it does, you will be able to make more tax-efficient investments than in previous years.
By making the most of your ISA allowance, you can tax-efficiently save and invest throughout your athletic career and beyond.
Remember that as the ISA allowance is for individuals, your partner or spouse can also save and invest up to £20,000 in their name. So, you can contribute up to £40,000 between you this tax year.
Furthermore, you can also contribute to a Junior ISA (JISA) in the name of a child under the age of 18. JISAs have a separate allowance, standing at £9,000 in 2024/25, and you can save in a Cash JISA, invest through a Stocks and Shares JISA, or split the allowance between the two as you see fit.
Your child can take control of the account from 16, and start accessing the funds on their 18th birthday.
This can provide a further tax-efficient allowance for saving and investing this tax year. JISAs could be especially useful if you were planning to set aside money for your children anyway, doing so in the tax-efficient environment offered by ISAs.
3. Review your investment portfolio
As we enter the new tax year, it could be a good time to review your investment portfolio. It is often sensible to review your portfolio regularly to ensure you are on track to achieve your investment goals.
It can also be beneficial to review your portfolio as your life circumstances change – for example, if you:
- Have signed a new employment contract
- Are approaching retirement, either from sport or from a second career
- Have had a child.
A financial planner can help you build a portfolio that matches your life goals, and that adapts over time with your circumstances.
4. Be aware of the Dividend Allowance changes
If you own a business for your image rights or run a company alongside your sporting career, you may receive income through dividends. If you do, it is important to be aware of a recent change to how these dividends are taxed.
At the start of the 2024/25 tax year, the government halved the Dividend Allowance – the amount you can earn in dividends tax-free – from £1,000 to £500.
This follows a similar change at the start of the 2023/24 tax year when the allowance was halved from £2,000 to £1,000.
The change means that, if you receive income through dividends, you may pay more tax in the 2024/25 tax year than you have previously.
As a result, you may want to consider how you receive income from your business. A financial planner can help you to receive your business income in a tax-efficient manner.
5. Learn about the recent changes to Capital Gains Tax
It is not just the Dividend Allowance that the government has halved this tax year (2024/25). It has also cut the CGT Annual Exempt Amount (AEA) in half from £6,000 to £3,000 again, following a similar reduction in 2023/24 when the government reduced the AEA from £12,300 to £6,000.
CGT is a tax paid on gains you make when you sell assets. These assets could be stocks and shares held outside of an ISA, second properties, art, or other certain possessions. The AEA is the amount you can profit from the disposal of such assets without paying CGT.
As with the Dividend Allowance reduction, this change could mean you pay more tax in coming years than you may have previously. So, you may want to reconsider the rate at which you dispose of assets. For example, by disposing of assets that generate gains of £3,000 a year or less, you may be able to avoid paying any CGT.
As you previously read, assets held within tax-efficient wrappers like ISAs are not liable to CGT. So, if you are not already, you may want to take full advantage of these investment accounts to mitigate any tax bill increase.
Finally, if you own multiple properties or have a buy-to-let portfolio, the government has also reduced the rate of CGT payable upon the disposal of these assets from 28% to 24%. Gains falling within the basic rate will still be taxed at 18%.
If you own multiple properties and have been considering selling them, this could be a good opportunity to do so in a more tax-efficient manner.
Get in touch
At ProSport, we specialise in helping professional athletes build long-term financial plans to support you throughout your career and beyond. Email enquiries@prosportwealth.co.uk or call 01204 602909 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority do not regulate tax planning.
