The tax year-end is on the horizon.
Confirming that your affairs are arranged tax efficiently will help you to grow, protect and preserve your finances.
Here are some tax planning suggestions that you may want to consider to ensure that you take advantage of any remaining reliefs, allowances, and exemptions before they are lost. NB - as many providers have specific deadlines for accepting applications to top up plans such as ISAs or Pensions, time is of the essence if you want to benefit from the current allowances before they are lost.
Check your PAYE tax code
Your tax code confirms how much you can earn before tax is applied and tells your employer or pension provider how much tax should be deducted each time you get paid. If you have multiple employers or pension providers, you may get more than one tax code. It is important to check that your tax code is correct - if yours is wrong, you could be paying HM Revenue & Customs (HMRC) more than you should or risk being penalised if you are paying too little.
Transfer part of your Personal Allowance
Married couples and registered civil partners can share 10% of their Personal Allowance (£1,260 in 2023/24) if one partner is a non-taxpayer and the other is a basic rate taxpayer (or a starter, basic or intermediate rate taxpayer in Scotland). The allowance can also be backdated to include any tax year since 5th April 2019 if you were eligible for the Marriage Allowance.
Pension Tax Relief
When you contribute into a pension, the Government provides tax relief at the highest rate of income tax you pay. Even if you don’t have pensionable income, you may be able to contribute up to £3,600 gross and obtain tax relief on your contribution.
For 2023/24, the annual pension contribution limit, or Annual Allowance (AA), for tax relief purposes is 100% of your salary or £60,000, whichever is lower. (NB - if you have a threshold income of more than £200,000 per year and an adjusted income of more than £260,000 per year, your AA will be tapered.)
The pensions carry forward rules currently allow any unused AA to be utilised for a maximum of three tax years – therefore 5th April 2024 is the last opportunity to use any available allowance from the 2020/21 tax year.
Individual Savings Accounts (ISAs)
Every tax year you have an ISA allowance. Funds within an ISA grow free of income and capital gains tax (CGT), and you can invest in a Cash ISA, a Stocks & Shares ISA, or a combination of both. The allowance for the 2023/24 tax year is £20,000. Don’t forget, any unused ISA allowance is lost at the end of the tax year.
Contribute up to £9,000 into your child’s Junior ISA (JISA)
The funds in a JISA grow free of income and CGT until your child reaches age 18, at which point they can either be withdrawn or rolled over into an adult ISA. Relatives and friends can also contribute to the JISA, as long as the annual allowance is not exceeded.
Tax-free Savings and Dividend Allowances
For 2023/24, savings income of up to £1,000 for basic rate taxpayers and £500 for higher rate taxpayers is exempt of tax. The tax-free Dividend Allowance is £1,000 for all taxpayers.
Married couples and registered civil partners could save tax by ensuring that each person has enough of the right type of income to make use of these allowances.
Capital Gains Tax (CGT)
CGT is a tax on the profit or gain you make when you sell an asset that has increased in value. You only pay CGT on gains above the tax-free Annual Exempt Amount, which is currently £6,000 in 2023/24, reducing to £3,000 in 2024/25. If you realise capital gains and/or losses in the same tax year, the losses are offset against the gains before the CGT exempt amount is deducted.
Inheritance Tax (IHT)
Utilising the annual £3,000 gift exemption can help to reduce the size of your estate for IHT purposes. Any unused amount can only be carried forward for one year, so last year’s gift exemption will be lost on 6th April 2024 if it is not used. Unlimited individual gifts of £250 can also be made, as long as you haven’t used another exemption on the same person.
Make a Will and review it
If you die without making a Will, your assets will be divided between your relatives according to the intestacy rules. Your surviving spouse or registered civil partner may only receive a portion of your estate, and IHT will be due at 40% on anything in your estate above £325,000 (up to £500,000 if the Residence Nil Rate Band is available).
If you leave at least 10% of your net estate to charities, the IHT on the remainder is charged at 36% instead of 40%.
Reviewing your financial plans on a regular basis can help you to make best use of the tax-efficient investment strategies available and ensure that you do not pay more in taxes than is necessary.
Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. Tax implications will be based on your individual circumstances.
The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested.
The content of this article was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.
The Financial Conduct Authority does not regulate advice on taxation, estate planning and will writing.
You should seek legal advice to ensure that your Will reflects your wishes and is legally binding.