As we into April there’s no escaping the fact that tax-year-end is upon us. While this is set against a very uncertain political and economic backdrop, your focus as a taxpayer needs to be on the allowances and opportunities you are set to lose after April 5.
With the clock ticking down to tax-year-end, you need to get your skates on and do all you can to take full advantage of the tax breaks available. Here are ten moves you might consider making.
Carry out some CGT planning
Capital gains tax (CGT) is charged when you dispose of certain assets that have increased in value (such as shares, property and other investments). This means you have some control over when to pay it. Following a string of cuts in recent years, the annual CGT allowance now stands at just £3,000, making it even more important to consider how to realise gains and avoid triggering an unnecessary tax bill.
Gary Smith, partner in financial planning at wealth management firm Evelyn Partners, said: “Now that investors and business owners are paying higher CGT rates of 18% and 24% on all assets, it is all the more important they consider whether to crystallise some gains in the current tax-year.”
Bear in mind that assets can be transferred between spouses free of tax, which can help to use up both spouses’ annual exemptions and any capital losses. The increased rates of CGT – and now meagre annual exempt amount – are strong arguments in favour of keeping as many investments as possible in tax-protected wrappers.
The good news is, if you do hold investments that are exposed to CGT or income or dividend tax, there is still time to transfer those assets – where possible – into an ISA or pension before the end of the tax year. By doing so, you will potentially use up some of your annual CGT exemption in the process. Also note that Bed and ISA strategies – selling assets and rebuying them within an ISA – can also help keep future gains tax free.
Make the most of ISA allowances
ISAs offer a valuable way to protect your savings and investments from capital gains, dividend and income tax. The overall annual limit is £20,000. If you don’t use this allowance before tax-year-end, you lose it. So, if you have yet to maximise your ISA contributions, don’t delay. Smith said: “Couples who have funds that are exposed to tax but where one person is not using their ISA allowance might consider using up that spare allowance, even if that means transferring cash or assets.”
Think about transferring your ISA
While you’re paying your ISAs some attention, now could be a good time to give some thought as to whether your existing set-up is still right for you. You may, for example, want to consider moving your cash ISAs to stocks and shares ISAs to potentially achieve better long-term growth. This will not count towards your annual allowance.
The right option for you will, of course, depend on your personal financial goals and appetite to risk. Also be sure to always manage ISA transfers carefully, as you don’t want to inadvertently end up losing any tax benefits your money has accrued.
Shelter as much of your income-paying assets as possible in ISAs
You may be familiar with the idea of a cash ISA protecting you from tax on your savings interest, but that’s not all these tax wrappers can do. Making use of the Bed and ISA process can help you shelter income-producing investments in a stocks and shares ISA – meaning you won’t pay tax on dividends in future.
Sarah Coles, head of personal finance, at Hargreaves Lansdown, explained: “Because the rate at which you pay dividend tax rate is often higher than the rate at which you pay CGT, it’s often worth prioritising this when making decisions about how to use your ISA allowance.”
Review your pension contributions
Another key part of your financial planning worth reviewing before tax-year-end is your pension payments. Making the most of pension tax relief can significantly enhance your retirement savings. Simple steps such as checking your contributions now and making any additional payments before the April 5 deadline can help you maximise the tax advantages available.
Coles said: “Higher-rate taxpayers benefit from tax relief at their highest marginal rate. You can pay up to £60,000 into your pension this tax year – and you can carry forward unused allowances from the previous three tax years.”
Claim tax relief on charitable donations
Charitable giving is another area where you can maximise tax efficiency. If you make donations through Gift Aid, charities can reclaim basic-rate tax on these. Do this before the end of the tax-year, and any applicable tax relief can be claimed in this tax period.
“Ticking that Gift Aid box adds 25% to your donation, and higher-rate taxpayers can claim back additional tax relief,” explained Myron Jobson, Senior Personal Finance Analyst at interactive investor. “If you’re on the cusp of a higher tax band, Gift Aid donations can help bring you back down and ensure you avoid paying tax at a higher rate.”
Take advantage of personal allowances
Another bit of planning worth carrying out before the tax-year-end is ensuring you’re making use of personal allowances. We each have a tax-free personal allowance – the amount you can earn before you could be liable for income tax. This is currently £12,570.
In addition, for those who are married or in a civil partnership, there is the Marriage Allowance. If your partner isn’t using their full personal allowance, they may be able to transfer £1,260 to you. It could reduce your overall tax bill by up to £252 in 2024/25. It’s worth taking a look at how income and assets are structured within your household more generally while you’re thinking about these allowances. You want to ensure that all available allowances are fully utilised.
Don’t forget the Junior ISA
If you’re a parent, it’s wise to give some thought to the Junior ISA allowance, as this is another good way to maximise tax-efficient savings. Under current rules, you can pay in up to £9,000 a year with the money growing tax-free until the child turns 18. At that point, the account turns into a standard ISA and the child can access the money.
Laura Suter, director of personal finance at AJ Bell, said: “Even putting away £500 a year can result in a decent pot after a few years, assuming it’s invested and earning 5% return a year after charges. After five years you’d have a pot worth £2,900. If it was saved for the full 18 years, you’d have a pot worth almost £15,000.”
Paying into a Junior ISA is not only a great way to build a nest egg for a little one – it can have another benefit, Jobson pointed out: “It can also be a way for particularly tax-savvy parents and grandparents that have already maxed out their ISA allowance to stow away extra funds.”
Use gifting allowances to reduce inheritance tax
IHT may be dubbed the ‘most hated tax,’ but there are simple steps you can take to reduce the amount your estate will pay. Every individual can ‘gift’ up to £3,000 per year free of IHT, and this can be carried forward if it wasn’t used in the previous year. Couples can combine their allowances to give away up to £6,000 tax-free annually.
Suter said: “On top of that, extra allowances apply for wedding gifts, with parents able to gift £5,000 to a child, grandparents able to give £2,500 to a grandchild, and anyone else allowed to give £1,000 tax-free. Small gifts of up to £250 per person each year are also exempt.”
Equally, a generous exemption is available for ‘gifts made from regular income,’ according to Suter, adding that “If these don’t reduce the donor’s standard of living, these can be unlimited”. So, if you haven’t used up your annual gifting amounts it’s a good idea to consider this before the end of the tax-year.
Seek professional advice
While you may be keen to make the most of all the allowances and reliefs available, you need to remember the tax system can often be complex. If you’re unsure of the best way to proceed, it may be worth speaking to a financial adviser. An expert can help you make informed decisions based on your individual circumstances – and long-term goals – and help you navigate your way through. The key is to work towards taking advantage of all the tax-saving opportunities available before it’s too late. You want to ensure your money is working as hard as it possibly can for you.
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