With the end of the tax year (5th April) fast approaching, it can pay to make full use of this tax year’s allowances and exemptions, as they could provide significant rewards for your finance in the longer term. This is especially so as some have a ‘use it or lose it’ status. 

1. ISAs

The annual ISA allowance is one such tax benefit which is lost if not used. Each tax year you can save up to £20,000 into an ISA which grows free of income tax and CGT liabilities. There are various ISA types, with their own limits. These are:  

• Cash or Stocks and Shares £20,000  
• Junior ISA £9,000 a year  
• Help to Buy ISA £200 a month (for existing accounts only – as this ISA is no longer available)  
• Lifetime ISA £4,000 a year 

Flexible ISAs allow funds to be withdrawn from an ISA as long as the funds are replenished in the same tax year as the withdrawal was made. 

2. Pensions 

Saving into a pension can be one of the best ways to save for retirement, as income tax relief is received on personal pension contributions. Under current rules, up to £40,000 can be saved into a pension per tax year, or 100% of your salary – whichever is lower. 

For higher earners with an income of over £100,000 a year, the annual pension allowance will gradually reduce, down to as low as £4,000. This is known as the tapered annual allowance. 

If not made in the current tax year, pension payments may be carried forward for up to three years. 

As pension planning can be a complex area, speaking to an Independent Financial Adviser can be beneficial in making the most of retirement savings and the tax reliefs available. 

3. Capital gains tax exemption  

Currently, the capital gains tax exemption is £12,300 for individuals, although this is reducing to £6,000 from April 2023, and then down to £3,000 from April 2024. This can be a useful tool to top up income in retirement if a person’s income level threatens to breach the next tax rate band. 

Growth investments typically incur capital gains tax but only if the gains take an individual over their current tax exemption amount for the year. 

4. Venture capital trusts (VCTs)  

VCTs are an efficient tax solution and can be useful for anyone who has maxed out their other tax reliefs or is close to breaching their pension lifetime allowance. They allow investors to claim upfront tax-relief worth 30% of the amount invested, up to an investment of £200,000, and earn tax-free dividends and capital gains. VCTs focus on early-stage growth companies and can offer entrepreneurs and small businesses much-needed support.  

However, as such they should be considered higher risk investments. 

5. Changes to tax rates  

From April 2023 the dividend allowance is reducing from £2,000 to £1,000, with a further reduction to £500 from April 2024. 

Also, the annual exempt amount for capital gains tax is reducing as mentioned above. 

Anyone receiving dividends above the changing amounts, should consider making the most of the current allowance and exemptions and seeking advice for future years. Likewise, for investments which will incur capital gains tax charges. 

An option available to transfer from non-ISA investments into a tax-efficient ISA, where no income tax or capital gains tax is paid, is called ‘bed and ISA’. This enables non-tax-free assets to be sold and used to top up or open a new ISA account. However, capital gains tax may need to be paid if the gains on the sale of the investment exceed the capital gains tax limit. 

It is worth pointing out that the tax tail should not be allowed to wag the investment dog – in other words, the main focus of financial planning should be to find the most appropriate investments and then ensuring those investments are held within tax efficient wrappers. 

If you’d like to ensure you’re prepared for the end of the tax year, a member of our Financial Advice team are here to help. Book your no-obligation chat with one of our Financial Advisers, here.  

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. 

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.