Your exact tax benefits will depend on your circumstances and may change in the future.
If you want to learn more about utilising your tax allowances, you can get tailored advice from Aviva Financial Advice or find an independent financial adviser on unbiased.co.uk. Remember you might be charged for any financial advice you receive.
Share assets with your spouse or civil partner
Make use of both spouses' or civil partners' personal income tax allowances by transferring taxable assets to your spouse or civil partner if they don't use their full allowance.
For example, you could transfer a deposit account from your name to your spouse's or partner's, so that the interest becomes theirs. The same applies to share dividends, income from property and income from investment funds such as OEICs (open-ended investment companies).
Use your pension contributions to maximise your state benefit entitlement
If either you or your partner earns between £50,000 and £60,000 a year before tax, you'll have to pay a charge known as the High Income Child Benefit Charge.
It's 1% for every £100 you earn over £50,000 (up to £60,000) each year.
A pension contribution has the effect of reducing your taxable income. For example, if your income was £60,000 and you paid £10,000 into your pension, this would have the effect of reducing your income (for the purpose of calculating child benefit allowance) to £50,000. Not only will you get 40% tax relief on any money you pay into your pension, if you’ve got two kids, you’ll also reclaim £2,074.80 in child benefit.
Child benefit for two children alone is equivalent to a pay rise of over £3,000, when you take income tax and national insurance into account.
Capital gains tax
Dispose of assets using your capital gains tax allowance. The allowance for 2023/2024 is £6,000, meaning you can make a profit of up to £6,000 without paying tax. Anything above is taxable.
Capital gains are taxed at different rates according to your income, so it is best to dispose of assets when you are a basic rate taxpayer, when the rate of tax on capital gains is 10% (or 18% if you dispose of residential property). If you are a higher rate taxpayer, the rate is 20% (28% for disposals of residential property that isn't your main home). If the gain, when added to your income, straddles the higher rate tax threshold, you will pay tax on some of the gain at 10% (or 18%) and the rest at 20% (or 28%).
If you've lived with your spouse or civil partner in the relevant tax year and aren't separated, you can reduce your capital gains tax bill by transfering ownership of assets to them.
For example, if you're planning to sell shares that'll give rise to a capital gain of £10,000, you can use your allowance to cover the first £6,000 of the gain. However, the other £4,000 would be taxable at up to 20%.
Transferring half the shares to your spouse before selling them would mean that you'd each make a £5,000 gain, which is within both of your £6,000 capital gains tax annual allowances and your total tax bill would be zero.
Bear in mind, however, you can't temporarily transfer ownership to your spouse or civil partner as this is tax evasion. Your spouse or civil partner would legally own the asset and be entitled to it if you were to separate.
Giving to charity/gift aid
The tax-year end is also a good time to think about charitable giving. Charitable gifts reduce your tax bill in a similar way to pension contributions. If you live in England or Wales, gifts made under the Gift Aid scheme qualify for immediate tax relief at 20%, with higher or additional rate taxpayers claiming back the difference via self-assessment. You may be asked to give evidence of a gift when claiming back the extra 20% or 25% at the tax-year end, so make sure you keep good records and get receipts.
Gifts made to charities also count as exempt transfers for inheritance tax, which means they don’t count as part of your estate as soon as they are made.
The Starting Rate for Savings and the Personal Savings Allowance
The starting rate for savings is available to those whose non-savings income and savings income added together is less than their personal allowance plus £5,000. For example, assuming you qualify for the full personal allowance of £12,570, you could benefit from the starting rate for savings as long as your total taxable income is less than £17,570.
The starting rate for savings can add an extra nil-tax allowance of up to £5,000 to cover savings income, but the allowance is reduced where non-savings income (earnings, pension income) is more than your personal allowance. This isn't available once your non-savings income reaches £17,570.
In April 2016, the government also introduced a new personal savings allowance. Basic rate taxpayers can now earn up to £1,000 interest on their cash savings account each tax year without having to pay tax and higher-rate taxpayers can earn up to £500 of interest. Those in the highest tax bracket, earning over £125,140 a year, do not benefit from the allowance.
If your only income consists of savings income, then using your personal allowance, the starting rate for savings and the personal savings allowance together could allow you to earn savings income of up to £18,570 without paying tax.
Tax rules for income from share dividends and other shares-based investments
When it comes to dividends from shares-based investments, including direct investments in shares and OEICs and unit trusts investing mainly in shares, everyone now has a dividend allowance of £1,000 (2023/2024). This means the first £1,000 of dividends is tax-free.
Tax is paid on any excess dividends over and above the £1,000 allowance, with the rate depending upon whether total income falls within basic, higher or additional rate tax band. The rates currently applied to these bands are 8.75%, 33.75%, and 39.35% respectively. Please note, there are conditions that must be met.