The new tax year is upon us and after a turbulent 2022, you’ll want to head into the new tax year as prepared as possible.
Thankfully, there are some important financial steps that you can take now. From maxing out your available allowances to factoring in changing thresholds and understanding key spring Budget changes, here’s your guide to a successful 2023/24.
1. Be an ISA early bird
You have a £20,000 ISA Allowance for the 2023/24 tax year so consider using it as early as possible in the year, if you can afford to.
Depositing the full £20,000 into your Stocks and Shares ISA on 6 April gives you 12 months of potential investment returns as well as longer for the benefits of compounding to take effect.
Make early contributions a habit for the duration of your long-term ISA investment and you could find the difference is huge.
In fact, recent figures from Hargreaves Lansdown suggest that first-day (compared to last-day) investment over a 20-year investment could mean additional returns of around £15,000. This is based on £5,000 invested in the UK stock market each tax year since April 1999.
If you don’t have £20,000 to invest currently, be sure to set up a regular contribution as soon as possible. Regular payments throughout the year boost the size of your pot while also allowing you to benefit from pound cost averaging.
As the stock market rises and falls throughout the year, your contribution will buy more or fewer units from month to month. By making regular contributions – whether times are good or bad – pound cost averaging will effectively “smooth” the effect of stock market movements. This smoothing could make a useful difference throughout the year.
2. Be sure to benefit from your increased Annual Allowance
Jeremy Hunt used his spring Budget to increase the pension Annual Allowance. This is the amount you can contribute to your pension each year while still benefiting from tax relief.
It had stood at £40,000 for the 2022/23 tax year but has now risen to £60,000.
Your pension is already incredibly tax-efficient but you now have an extra £20,000 you can save tax-efficiently this year. The sooner you start budgeting for that increase, the more chance you have of making full use of it.
Tax relief is worth an extra 20% on top of all pension contributions you make (up to the limit), applied automatically. You can claim further relief via your self-assessment tax return if you pay the higher or additional rate of Income Tax.
It is also worth noting that the £60,000 Annual Allowance might not apply to you. If you are subject to either the Money Purchase Annual Allowance (MPAA) or the Tapered Annual Allowance (TAA), get in touch now. These limits have also changed and we can help you to make the most of the new amounts.
3. Use falling allowances before the thresholds drop further
Several threshold changes took effect from 6 April, including drops to the Capital Gains Tax (CGT) annual exempt amount and the Dividend Allowance.
Not only did these both fall, but they are due to fall again next tax year.
That means you’ll need to think about maxing out the available allowance now, while also putting contingencies in place to mitigate future changes.
The CGT annual exempt amount dropped from £12,300 to £6,000 on 6 April 2023. It will halve from April 2024, dropping to just £3,000.
Likewise, the annual amount that you can earn from dividends before a Dividend Tax liability arises will also decrease twice in two years. It dropped from £2,000 to £1,000 in April 2023, and fall to just £500 for the 2024/25 tax year.
Get in touch
A new tax year is a great opportunity for a new start, setting yourself some financial targets and habits to see you through the next 12 months.
With spring Budget changes and huge pension announcements all taking effect, there is more to think about than ever. So if you’d like help to manage your finances this year, or you have any questions about your long-term plans, speak to us now. Get in touch by emailing email@example.com or calling 03452 100 100.
The value of investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.