Tax Year-End – Getting the most out of your Allowances and Reliefs.
Now we are approaching tax year-end, it is the perfect time to review your allowances and the available tax relief.
Making full use of these allowances is not always applicable for everyone; however, where they are, it can be a useful way to reduce your tax liability.
As everyone’s circumstances are different, you should always seek independent financial advice.
Top 5 Tax Planning Tools:
- Pension Contributions
Making pension contributions before the end of the tax year can be a useful way of obtaining tax relief. Government incentives mean you could boost your personal contribution by between 20% and 47%, depending on your taxable earnings.
With the annual allowance for 2023/24 increased to £60,000, you could contribute 100% of your pensionable earnings up to this amount, whilst benefitting from tax relief. There is also scope to carry forward unused allowances from the previous 3 tax years.
If you are a business owner, contributions can be made directly from the business which has the benefit of potentially reducing your corporation tax liability.
- Personal Savings Allowance
With interest rates rising, cash savings are now generating higher returns. This means it’s important to understand how this interest is taxed.
The Personal Savings Allowance (PSA) for the 2023-24 tax year is:
- £1,000 for basic rate taxpayers
- £500 for higher rate taxpayers
- £0 for additional rate taxpayers
- ISA Allowance
Individual Savings Accounts (ISAs) are tax-efficient accounts in the UK that let you save or invest without paying income tax or capital gains tax on the returns.
It’s always helpful to review the key ISA rules:
- The annual ISA allowance for 2023/24 is £20,000. This is the maximum you can contribute across all ISA types in a tax year.
- Unused ISA allowances cannot be carried over to the next tax year. It’s a ‘use it or lose it’ allowance.
- ISA allowances are individual. Couples can shelter £40,000 annually between two ISAs.
Utilising ISAs can also avoid the hassle of reporting interest income on tax returns, which is another key consideration.
- CGT Allowance
Many accounts are not as tax efficient as an ISA. Growth on investments held outside an ISA or pension will likely be subject to capital gains tax, although you have a capital gains allowance.
The capital gains tax allowance is currently £6,000 for 2023/24, however this is due to reduce to £3,000 from the beginning of the 2024/25 tax year.
This highlights the need to review your holdings to ensure they are managed as tax-efficiently as possible.
Typically, assets transferred between spouses do not count as a disposal for capital gains tax purposes.
- IHT Allowance
If you are likely to have an inheritance tax liability in the future, there are ways to reduce this burden with a proactive approach.
Some of the options are as follows:
- Annual gift allowance
- Smaller gift allowance
- Gifts for weddings or civil partnerships
- Gifts from normal expenditure out of income
There are other options available such as the use of trusts or larger gifts, however this is a highly complex area and one which you should consult with a professional.
Reminder
The tax year ends on 5th April, so if any of the above is relevant to you, it is important to leave plenty of time to review your situation.
If you are in any doubt about the reliefs and allowances available to you, please do not hesitate to contact us.
