In the lead up to April, the days are getting longer and warmer. It’s a time for fresh starts and gearing up for the year ahead. So why not extend the spring clean treatment to your finances?
There are several ways to save and invest that have tax benefits, with each having an allowance for each tax year. Understanding when and how to make the most of them could mean you end up better off. And we’ve got a few handy tips to help you do just that.
Always remember, investment values can fall as well as rise, so you could get back less than you put in.
Your exact tax benefits will depend on your circumstances and may change in the future. The information on this page is based on our current understanding of tax rules.
What is the tax year end?
It’s the date you need to use any annual tax relief or allowances by. Confusingly, it doesn’t line up with the calendar year end. But maybe that’s a good thing. Finessing your finances on New Year’s Eve could be a recipe for disaster.
Instead, the tax year starts on 6 April and runs to 5 April the following year.
Whether you work for yourself or someone else, your earnings should be tracked during this period so you pay the right amount of tax. If you work for an employer, they’ll usually take care of this. But if you’re self-employed it’s very much down to you, and you’ll need to complete a self-assessment form by 31 January.
And when it comes to allowances, it’s a case of ‘use it or lose it’. Aside from a few exceptions, you won’t be able to carry them over from one tax year to the next.
All about allowances
No, we don’t mean pocket money. We’re talking tax, savings, pensions and more. And with a list like that, it can feel like you’re stuck in a maze. We’re here to help demystify allowances, so you can feel confident your money is working hard.
|ISAs||The yearly ISA allowance is £20,000. Make the most of this if you can. It’s a tax-efficient way to save, as you won’t pay income or Capital Gains Tax on your ISA profits.|
|Pension contributions and allowances|| |
The annual allowance for pension contributions has increased from £40,000 to £60,000 for the 2023/2024 tax year. You’ll only pay tax if you or your employer pay in more than your allowance in a tax year.
Your allowance may be lower if you’ve accessed your pension flexibly or you have a high income.
If you’ve already used up your annual allowance for this tax year, you may be able to ‘carry forward’ any unused annual allowance from the previous three tax years.
|Capital Gains Tax (CGT) and annual exemption|| |
If you’ve sold shares, additional properties, or possessions and made a profit because they’ve increased in value, CGT comes into play.
The tax-exempt amount for the 2023/2024 tax year has dropped from £12,300 to £6,000, which could make a difference if you’re planning to sell anything soon.
|Gifting allowance and inheritance tax|| |
You can gift up to £3,000 a year without it counting towards the value of your estate (the total worth of your money, property, and possessions). If you skip a year, you can carry your allowance over to the next, and gift up to £6,000.
Using your gifting allowance reduces the overall value of your estate, meaning your family will pay less inheritance tax when you die.
|Dividend allowance|| |
If you receive dividend payments on shares you hold, an annual dividend allowance applies. It’s worth noting that the allowance for the 2023/2024 tax year has dropped from £2,000 to £1,000.
On payments above the allowance, you’ll pay income tax at:
• 8.75% for basic rate
• 33.75% for higher rate
• 39.35% for additional rate
|Personal Allowance, Personal Savings Allowance (PSA) and the starting rate for savings|| |
You’ll only pay tax on yearly earnings over your Personal Allowance of £12,570.
Your PSA depends on your income tax band. If you fall under the basic rate, you can get £1,000 of interest without having to pay tax on it. For those in the higher rate band, this drops to £500.
And if your annual income is lower than £17,570, you can earn up to £5,000 of interest without paying tax on it with the starting rate for savings.
|Marriage allowance||We all know sharing is caring. Marriage allowance lets you transfer £1,260 of your personal allowance to your spouse, if you meet certain conditions.|
Your tax year end tick list
Being fully clued up on the ins and outs of allowances can help your finances click into place. Now the only surprises you need to look out for this spring are the April showers.