What tax-saving measures should you consider before the end of the 2023/24 tax year?
What tax-saving measures should you consider before the end of the 2023/24 tax year?
Let’s assume that you have your own financial plan in place, what tax savings should you consider before the end of the tax year? Optimising your portfolio for tax-efficiency can help you meet your goals, maximise your wealth and ensure your financial future.
When does the 2023/24 tax-year end?
The tax year ends every year on April 5th. Knowing your annual income allows you to understand your tax band and ensure you take advantage of potential reliefs or allowances. This is simple for the employed but requires some diligent planning on the part of the self-employed as your accounts do not need to be submitted until the following January. By this stage you may have missed out on valuable allowances.
What tax-allowances are available?
In this article, we will stick to the tax allowances that most investors can take advantage of. It is worth noting that there are other allowances for the more sophisticated investor. However, where appropriate, they would be raised with you personally during our review meetings.
Now most people can solve all their investing requirements in a nice and tax-efficient manner with a pension and an ISA. As such, let’s start with an old favourite, pensions. Everyone loves their pension, right? Regardless, your pension contributions should be a key consideration at the end of each tax year.
How much can you pay into a Pension in the 2023/24 tax year?
You can also make payments on behalf of your children and grandchildren regardless of their age. Their pension scheme can reclaim basic rate tax from HM Revenue & Customs (HMRC) and, if you are a higher rate tax payer, you’ll also receive additional tax relief. Not a bad way to kick start the future generations financial future.
Under the age of 75, even non-taxpayers can contribute up to £3,600 gross (£2,880 net) per year into a pension. No tax-relief is available for those over 75.
A quick nod to the high-earners, if your adjusted income exceeds £260,000, the annual allowance is progressively reduced by £1 for every £2 of income over this threshold, down to a minimum of £10,000 gross (£8,000 net) for those with an adjusted income above £360,000.
Reviewing your pension status and that of your family members is crucial for effective financial planning.
Next up is the are ISAs. If you have read this far, it might be worth noting that good financial planning should be a little dull at this stage.
How much can you pay into a Individual Savings Account (ISA) in the 2023/24 tax year?
At the start of the tax year you received an ISA allowance of £20,000. You can contribute one or a combination of a Cash ISA, Stocks & Shares ISA, Lifetime ISA or Innovative Finance ISA. As such a married couple can save up to £40,000 away each year into this little darling of tax-efficiency.
In many ISAs you have the flexibility to withdraw money during the year and replace it before the end of the tax year without using up your annual allowance. The money receives no tax-relief as such, however, it grows free from capital gains tax and any income from the ISA is free from income tax.
Where you have shares and investments held outside an ISA wrapper, you may want to get advice on whether to bring them inside into the cosy warmth of tax-efficiency. However care must be taken as you may trigger a Capital Gains Tax charge.
Where you have exhausted this allowance, or simply wish to invest for your children instead, you could consider the JISA.
How much can you pay into a Junior ISA (JISA) in the 2023/24 tax year?
Junior ISAs are very similar to ISAs, aimed at the under 18s with an allowance of £9,000 per annum. A great way to create a nest egg for when they turn 18. Note that they will be in full control of the money at this point and free to spend it how they see fit. Oh, to be 18 again.
Now, if your children are over 18, you may wish to consider a Lifetime ISA.
How much can you pay into a Lifeime ISA (LISA) in the 2023/24 tax year?
From the age of 18 to 40, an investor can save up to £4,000 each year in a Lifetime ISA (LISA). The government will boost this saving feat with a 25% bonus, up to a maximum of £1,000 per year. Now, this money can be used as a deposit to purchase their first home or preparing for retirement from the age of 60.
Where the money is used for any other reason the 25% government top-up is lost. Now, onto some other allowances.
How much can the marriage allowance save you in the 2023/24 tax year?
You can consider Employee Tax Reliefs.
What are your Employee Tax Reliefs?
As part of your working life there are several l tax reliefs you may be eligible to claim, such as:
- Tax-relief is for professional subscriptions - If you must maintain membership in a professional body as part of your job, you can claim tax relief on these fees.
Working from home allowance.
Tax-relief for business miles travelled in your personal vehicle.
Where you are self-employed, I’m sure your accountant makes sure you make the most of these. If you are employed and do not work with an accountant, it would be worth looking into these further.
What are your Trading and Property Allowances?
If you earn a small income from activities such as selling items on eBay/Amazon or hosting via AirBnB, there are allowances offers up to £1,000 of tax-free income.
There is also the Rent-a-Room relief. This applies where you rent out a portion of your home and allows you to receive up to £7,500 tax-free.
What if you have assets to sell that may incur CGT?
What are your Capital Gains Tax Allowances in the 2023/24 tax-year?
We are in a changing landscape for Capital Gains Tax (CGT). Last year your had a £12,000 allowance, this year it has been reduced to £6,000 and on the 5th April 2024, it will be reduce to £3,000. The lowest it has been since 1981. A fine year having brought this Financial Planner into the world.
Where you have assets you plan to sell in the coming year, it would be worth discussing with your Financial Planner and Accoountant if there are strategies that can be used to minimise your CGT tax bill.
Speaking of changes, what about your dividend allowance?
What is your Dividend Allowance in the 2023/24 tax-year?
What other Available Allowances are available in the 2023/24 tax-year?
You may wish to consider gifts for Estate Planning.
How much can you gift for state planning in the 2023/24 tax-year?
As part of your estate planning strategy, you can make certain gifts exempt from Inheritance Tax. These immediately leave your estate upon making the gift. They include gifts presented to your spouse or registered civil partner, charities or political parties.
You may gift up to £250 to any number of recipients, provided it is the only tax-exempt gift they’ve received from you within this tax year.
You can give your child a wedding gift of up to £5,000, a grandchild up to £2,500, or up to £1,000 to any other happy recipient.
You are also allowed to gift £3,000 of cash or property to a single individual or divided among several recipients. If unused, you and also carry-forward last year’s exemption, effectively doubling the exemption to £6,000.
This was a whistle-stop tour of tax-planning strategies and if you have read this far, you should definitely get in touch via the button below. The tax-year is coming to a close in a couple of months and we’re here to help you make the most of your money.
