The end of the 2023/24 tax year is fast approaching and that means now is the perfect time to check in with your finances to make sure you are ready.
Preparation is especially important this year as 6 April 2024 will see a raft of changes, from reduced allowances to the abolition of the Lifetime Allowance (LTA).
Here are five important steps you can take now to ensure you make the most of this tax year and head into the next in the best possible shape.
1. Use your full pension Annual Allowance if you can afford to
For the 2023/24 tax year, the Annual Allowance increased from £40,000 to £60,000. This effectively gives you the chance to make an additional £20,000 of tax-efficient contributions.
The Annual Allowance is the amount you can contribute to your pension each year while still receiving tax relief. It is automatically applied at 20% but you can claim more as a higher- or additional-rate taxpayer. You need to do this via self-assessment.
If you can afford to top up your pension, do so now to make full use of the wrapper’s tax efficiency. Be sure to take a look back at last year’s contributions too, as unused allowance can be carried forward.
Finally, remember that different allowances might apply to you. If you’re a high earner, you might be subject to the Tapered Annual Allowance, which could reduce your maximum tax-efficient savings to just £10,000.
Equally, if you have already taken some pension benefits using certain flexible options, you might have triggered the Money Purchase Annual Allowance. This too, will reduce your allowance to £10,000.
2. Make the most of your ISA Allowance
ISAs are another tax-efficient savings and investment vehicle. You’ll want to make the most of this tax efficiency before the tax year ends.
For the 2023/24 tax year, you have an ISA Allowance of £20,000. This amount is spread across all the ISAs you hold.
You don’t pay tax on interest you earn in a Cash ISA, while Stocks and Shares ISA gains are free of both Income Tax and Capital Gains Tax (CGT).
Unlike the Annual Allowance, though, your ISA subscription applies for a single tax year only, and unused allowance can’t be carried forward. If you don’t use your allowance, you lose it.
Check in with your ISAs to see if you have any unused allowance and top up now if you can afford to.
3. Consider tax-efficient gifting to lower a potential Inheritance Tax liability
Back in November, you might have read How HMRC gifting rules could help you give the gift of an investment this Christmas in which we looked at the benefits of gifting.
Using HMRC’s gifting allowances allows you to lower the value of your estate for IHT purposes, while providing ongoing support to loved ones, during your lifetime.
One of the most useful HMRC allowances is your annual exemption. This allows you to gift up to £3,000 during the 2023/24 tax year, so if you haven’t already made full use of this exemption, consider doing so now. You also carry forward any unused allowance from last year.
If you’d like to discuss the tax efficiency of giving while living get in touch and we can help you to make the most of the gifts you give.
4. Be sure to make the most of the Dividend Allowance before it falls again
Over the last few years, several frozen allowances have amounted to stealth taxes on UK workers. While the Personal Allowance and the IHT nil-rate band have remained static, some allowances are actually decreasing.
If you receive any income from dividends, you’ll likely be aware that the Dividend Allowance halved in the 2023/24 tax year compared to the previous year.
The Dividend Allowance is the amount you can receive in dividends in a tax year before tax becomes due. It dropped in April 2023 from £2,000 to just £1,000. From April 2024, it will halve again, to £500.
This significant drop might mean you want to revisit how you receive dividend income in the future. For now, though, be sure to make the most of your 2023/24 allowance before it drops.
5. Your Capital Gains Tax Annual Exempt amount is also falling
If you plan to dispose of assets over the coming months, you’ll need to be aware of the falling CGT Annual Exempt Amount.
In 2023/24, you’ll only pay tax on profits exceeding £6,000. This is a reduction from the 2022/23 amount of £12,300 but it is due to fall again.
While it can be tax-efficient to spread disposals over two years, make the most of the exempt amount now as it will drop to just £3,000 from April 2024.
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This article is for general information only and does not constitute advice. The information is aimed at retail clients only.