End of tax year preparations

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Craig Croft-Rayner Financial AdvisorApril 5th is almost here and at this time of year, we encourage all our clients to set time aside for an annual financial health check. It gives you the chance to look back on what’s worked, ensure you’re taking advantage of all the allowances and opportunities available and make a plan for the coming tax year. Our tax planning guru, Craig, has put together some helpful points to consider before the April deadline.

‘Use or lose’ your ISA allowance

ISAs are a great tool which enable your money to grow tax-free. And while everyone has an individual ISA allowance of £20,000 it’s a ‘use it or lose it’ scenario; you can’t carry any of this allowance forward into the new tax year. So, checking you’re making the most of your ISAs is a great way to ensure your money is working hard for you.

Your ISA allowance can be spread across cash, stocks and shares and Lifetimes ISAs (if you’re under 40). So, if you haven’t yet made use of your ISA allowance this tax year and have excess money sitting in your bank account earning minimal or even no interest, get in touch to discuss the benefits of stocks and shares ISAs. If you already have one, contact us soon to top up your account.

Make your pensions work harder

If you’re saving for your retirement, pensions are incredibly tax-efficient with your contributions attracting tax relief through an additional amount paid into your pot by the government. With increasing flexibility around retirement, they’re a more attractive choice than ever for anyone saving for later in life, whatever your plans.

Unlike ISAs, if you don’t use your annual pension allowance (100% of your annual earnings, capped at £40,000) you’re able to ‘carry forward’ the past 3 years’ unused allowance to make a lump-sum contribution. If you have excess cash sitting in a bank account, your pension makes a great
tax-efficient investment.

In addition, if you’re a business owner, money in your business account can be used to make a lump sum pension contribution for directors; a great way of extracting money from your business,
tax-free, and benefiting from Corporation Tax Relief at the same time.

Get to grips with gift allowances and Inheritance Tax

Everyone has an IHT allowance of £325,000 on their assets, so anything beneath this level is untouchable from a tax point of view, but anything above this is subject to a tax charge of 40%. However, HMRC allows gifts of £3,000 to be made each tax year which, if unused, can be carried forward from the previous year. So, a couple could move up to £12,000 out of their joint estate before the end of the tax year.

Gifts from regular income are also allowed, but the rules are more complicated. If you have any concerns about inheritance tax or want to better understand the rules around gift allowances, please get in touch.

Understand your Capital Gains Tax (CGT) allowance

Any assets you hold outside a tax wrapper (like your ISA or pensions) are subject to a CGT charge if you sell or transfer ownership to someone else. This tax applies to stocks and shares, property or any other valuable items.

Everyone has a tax-free CGT allowance of £12,300 for the year 2022/23, which reduces to £6,000 for 2023/24 and reduces again to just £3,000 for 2024/25. The rate of tax can be complicated to work out, but as a rule, basic rate taxpayers pay 10% and higher rate taxpayers 20% (18% and 28% respectively if a property is sold). It’s possible to split the gain over 2 tax years to reduce your bill, or transfer assets to a spouse to make use of dual allowances but it’s important to note these processes can be complex so it’s always worth seeking expert advice before making any decisions.

All change for the dividend allowance

The UK Government’s Autumn 2021 Budget set out a series of changes for dividend allowances, some of which come into effect from April 6th 2023. Whilst you won’t pay any tax on dividends falling within your personal allowance of £12,750, an additional allowance, known as the dividend allowance will be steadily reduced over the next 2 tax years. As of this tax year (April 2022 to April 2023) the allowance is set at £2,000, but it’ll drop to £1000 in 2023/24 and then again to just £500 for 2024/25. So, it’s important to understand now where you stand and what these changes will mean for you in the coming tax periods.

We’re on it!

Be assured that for our existing clients, all the allowances are used for you, where applicable, and issues such as inheritance tax or investments held outside of tax wrappers are regularly discussed at client reviews. However, if you want more information about any of the tax allowances or approaches outlined above, please get in touch. We’re here to help!

Craig Croft-Rayner

Craig Croft-Rayner Craig is a Director and Financial Planner with 5 years of dedicated experience in the finance sector. Craig's commitment to excellence is evident as a proud member of the Chartered Insurance Institute and holds a diploma from the Personal Finance Society (PFS). He is currently undergoing training to achieve the esteemed Chartered Financial Planner status. Craig is passionate about empowering individuals to make informed financial decisions and achieve their financial goals.

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