There are just days to go before the end of the tax year on April 5, so now’s the perfect time to check you’ve made the most of the various annual allowances that may be available to you.
Here’s our rundown of some of the options you might want to consider taking advantage of while you still can.
1. Have you used your ISA allowance?
This tax year (2023/24) you can put up to £20,000 into tax-efficient individual savings accounts (ISAs) and your returns will be free from income tax and capital gains tax (CGT). This is a ‘use it or lose it’ allowance, so if you don’t use it by April 5, it’ll be gone for good. You will, however, get a new £20,000 ISA allowance for the 2024/25 tax year when that begins on April 6.
You can currently only pay into one of each type of ISA in any tax year (cash, stocks and shares or an innovative finance ISA which invests in peer-to-peer lending). However, from April 6, you’ll be able to pay into as many of the same type of ISA as you want, again as long as you don’t breach your allowance.
You can find out more about ISAs and their benefits in our article Everything you need to know about ISAs.
2. Give your pension a boost
Pension savers are generously rewarded by the taxman for saving for the future, so you may want to consider paying a bit extra into your pension before the end of the tax year to benefit from tax relief.
For example, if you’re a basic rate taxpayer and you pay £80 into your pension, HMRC will top this up to £100, and if you’re a higher or additional rate taxpayer, you’ll receive even more tax relief on your contributions, which you can claim back through your self-assessment tax return. Find out more in our article How pension tax relief works.
There’s always lots of speculation that the Chancellor might restrict pension tax relief, so if you’re considering paying into your pension you might want to think about acting sooner rather than later. Bear in mind that there’s a maximum amount you can pay into your pension each tax year. This tax year (2023/24) you can claim tax relief on pension contributions of up to £60,000 or 100% of your income, whichever is lower. Find out more in our guide How do pension allowances work?
If you have unused annual pension allowances in recent tax years, you may be able to use these this tax year under carry forward rules. Learn more about these in our guide Pension carry forward explained.
Even if you’re not currently earning, and if you can afford to, you can make pension contributions of up to £3,600 each tax year, or your spouse can pay into your pension on your behalf. You or they only have to pay in £2,880 and the State will top this up by £720. Find out more in our guide Can my husband or wife pay into my pension?
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
3. Don’t forget your personal allowance
Your personal allowance is the amount of money you can earn in the 2023/24 tax year without paying tax. This tax year the personal allowance is £12,570, and it will remain at this level in the 2024/25 tax year.
If you’re married but only one of you is working, it can make sense to think about transferring savings accounts to the person who doesn’t work, so that you can keep your combined tax bills to a minimum. If you don’t make use of your personal allowance in any tax year, you can’t carry it forward to the next year.
There’s also the Marriage Allowance to consider. This entitles non-taxpayers to transfer up to 10% of their £12,570 personal allowance to a basic rate tax-paying spouse or civil partner. Claims can be backdated by four years, so married couples could claim up to £1,150 if they haven’t previously made full use of their allowance. Learn more about the Marriage Allowance and how to apply in our article the Marriage Allowance explained.
4. Think about Inheritance Tax
Inheritance tax (IHT) is charged on the value of your assets above a certain threshold when you die. This threshold is currently £325,000 and will remain at this level in the 2024/25 tax year.
Tax rules enable you to gift up to £3,000 free of Inheritance Tax each tax year, called your ‘annual exemption’ and you can also make as many smaller individual financial gifts of up to £250 per person as you wish. Learn more in our guide Six ways to reduce inheritance tax bills.
You can give away bigger lump sums, but you must live for at least seven years from the date you make the gift for it to be exempt from Inheritance Tax. Find out more in our articles Understanding Inheritance Tax and Inheritance tax: what are potentially exempt transfers?
5. Consider capital gains
Changes to Capital Gains Tax (CGT) mean that growing numbers of investors are likely to pay this tax in coming years.
Capital Gains Tax is payable on investment gains in excess of your annual CGT allowance, at a rate of 10% on gains for basic rate taxpayers and 20% for higher and additional rate taxpayers. There’s an extra 8% levy on top of these rates if the gains are made from selling an investment property, although the higher rate of Capital Gains Tax on residential property will be reduced from 28% to 24% from April.
The annual CGT exempt amount is currently £6,000 in the 2023/24 tax year, but this will reduce to £3,000 in the 2024/25 tax year. If you have a big investment portfolio with large unrealised capital gains, you might want to think about transferring assets to your spouse or civil partner to make sure both exemptions are fully used.
Find out more about CGT in our guide What is Capital Gains Tax and how do I pay it? and Five ways to beat the Capital Gains Tax hike.
Tax rules can be really complicated, so it’s a good idea to get professional financial advice to help you work out the best ways you might be able to use annual allowances to your advantage.
You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.
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