The end of the tax year is an important time for investors. On the 6th of April, all tax-free investment allowances are reset, meaning that the weeks before are a great time for you to use as much as possible.
Here is our breakdown of everything you need to know before the 2023/24 tax year ends on the 5th of April.
ISAs & Junior ISAs
Individual Savings Accounts (ISAs) are tax-efficient savings accounts offered in the UK. They allow you to grow your money without paying income tax or capital gains tax on any returns you earn. The cash or investments within can then be withdrawn tax free as and when needed or used to cover retirements.
There is now a wide array of ISAs available for individuals to make use of each tax year, including:
Stocks & Shares and Cash ISAs
You can contribute up to £20,000 (total ISA allowance) this tax year across all types of ISAs.
You can hold both a Stocks & Shares ISA and a Cash ISA in the same year, but the total combined contributions cannot exceed the £20,000 allowance.
Individuals over the age of 16 can open a Cash ISA and individuals over the age of 18 can open a Stocks & Shares ISA.
Lifetime ISA
Can be opened by anyone aged between 18 and 39, where you can save up to £4,000 a year, with the government adding a bonus 25% (up to £1,000 a year) on top.
This account can be funded in conjunction with other ISAs and your contributions (not including the bonus) would just go towards the total ISA allowance of £20,000.
These accounts can continue to be funded up to the age of 50.
This account can then be put towards a first home costing up to £450,000 or drawn-out tax free from age 60 onwards. If accessed before age 60 and not used for a first home, there is a 25% penalty, equivalent to a loss of 6.25% of what you contributed excluding any interest/growth.
Help to Buy ISA
Whilst you can no longer open a Help to Buy ISA, if you already have one you can continue saving up to £200 per month. All the cash and the interest saved within this account will have 25% added to it when used to buy your first home with two exceptions:
- You need at least £1,600 saved to get any bonus.
- The most you’ll get the bonus on is £12,000, which would give you a maximum bonus of £3,000).
The bonus is set to keep paying until 1st December 2030 as long as the Help to Buy ISA is used to buy a property costing up to £250,000, or up to £450,000 in London.
Junior ISAs
Contributions of up to £9,000 can be made into Junior ISAs this tax year to build up a tax-free nest egg for your child’s future.
Pension contributions
The government offers significant tax incentives to encourage pension contributions as outlined below:
Tax relief
Non-taxpayers and basic-rate taxpayers are entitled to 20% tax relief on any personal contributions, whilst higher and additional rate taxpayers can claim up to 40% and 45% tax relief, respectively.
Tax free growth
Investments within a pension wrapper grow tax free with no income tax or capital gains tax applied to growth within the pension wrapper.
Tax free lump sum
25% of your pension savings (up to a current cap of £268,275) will be available to be drawn tax free from age 55 (due to increase to 57 from 2028).
Pension savings remain outside of your estate
Defined contribution pensions currently benefit from sitting outside of an individual’s estate from an inheritance tax perspective. Hence any pension savings that are not exhausted at death avoid any inheritance tax.
Therefore, making pension contributions can be very tax efficient, particularly for higher and additional rate taxpayers.
However, there are caps on how much individuals can put into their pensions each tax year and receive tax relief. This is either up to 100% of earnings or up to the annual allowance. The annual allowance is currently set at £60,000 this tax year, which has increased from the £40,000 annual allowances from previous tax years.
You can carry forward any unused annual allowances from the previous three tax years.
Please note a tapered annual allowance can reduce the allowances for individuals with total ‘Adjusted income’ over £260,000 this tax year or over £240,000 in the previous three tax years.
Capital Gains Allowance
Whilst the Capital Gains Tax (CGT) allowance has reduced this tax year, from £12,300 down to £6,000, it is still a use it or lose it allowance that lets you realise gains of up to £6,000 this tax year before any CGT becomes payable.
This allowance allows individuals to harvest gains up to the £6,000 threshold without any tax liability and either access the capital if needed or re-invest the proceeds.
This provides the potential for a saving of up to 20% for higher or additional rate taxpayers when selling investments and up to 28% for higher or additional rate taxpayers when selling properties.
It’s worth noting that this allowance is scheduled to reduce further, down to £3,000 per tax year from the 6th of April 2024 (from the 2024/25 tax year onwards).
Personal Allowance
Individuals can earn up to their personal allowance of £12,570 this tax year before income tax becomes payable.
Therefore, there may be the opportunity for those that have retired and not made full use of their personal allowance, to draw otherwise taxable income from their pension savings or any businesses up to this threshold and not pay any income tax.
Marriage Allowance
Marriage Allowance lets individuals transfer £1,260 of their Personal Allowance to their husband, wife, or civil partner. This could equate to a tax saving of up to £252 per tax year.
You can benefit from Marriage Allowance if all the following apply:
- You’re married or in a civil partnership.
- You do not pay Income Tax, or your income is below your Personal Allowance (usually £12,570).
- Your partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270.
Dividend Allowance
Individuals have a dividends allowance of £1,000 this tax year, whereby no tax is applied on the first £1,000 of dividend income received. For those that have not made use of this allowance with business assets could therefore look at paying out a dividend to make full use of this allowance.
In conclusion
Taking advantage of these allowances before the tax year end can significantly enhance your financial position. If you have any questions about allowances, deadlines or your own specific circumstances, please get in touch.
Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.
