There is precious time left before tax year end on April 5th. Don’t leave your tax planning to the last minute; there are valuable allowances to use before it’s too late. And, you can plan properly for the future. Here are our six top tips:
1. Maximuse your ISA
If you invest in an Individual Savings Account (ISA), your profits/gains will be free from capital gains tax and you’ll pay no tax on income from any dividends either. Your full ISA allowance should be used as a priority each year as it’s one of the most tax-efficient ways to save. The most you can pay into an Individual Savings Account (ISA) is currently £20,000 a year. There are four types of ISAs for adults. You can only put money into one cash ISA and/or one stocks and shares ISA and/or one lifetime ISA and/or one innovative finance ISA in each tax year. Next tax year the limit is due to remain the same, but, if you don’t use it you lose it!
At Simply Ethical, we offer Stock and Share ISA which allows you to invest in diversified portfolio of Sharia compliant investments that are actively managed by our experienced team.
To learn more about ISA, please visit: https://simplyethical.com/isa/
With the end of tax year fast approaching, please be aware of deadlines for tax year 2023/24 to ensure that you don’t miss out on any allowances. Please note, new clients should set up an account with us by 3 April 2024. For contributions into ISAs or pensions, funds must be with us by close on 4 April 2024.
2. Save for your children
If you have children or grandchildren, the Junior Individual Savings Account (JISA) is worthy of consideration. JISA has the same tax benefits as an adult ISA, however, Junior ISA limit is £9,000 for the tax year 2023/24. You can pay into a JISA on behalf of your child up to age 18, but your child can take control of the account at 16. However, no withdrawals are allowed before 18. When your child turns 18, their account is automatically rolled over into an adult ISA.
Again, if you don’t use the full JISA allowance in the tax year, the remainder does not roll over and will be lost. The better JISA providers will allow multiple contributors, so it’s a great way for grandparents to help out.
3. Top up your pension
There are limits to the amount you can tax-efficiently pay into your pension, known as the Annual Allowance. You can contribute and get tax relief up to the Annual Allowance of £60,000, or if you earn below this then tax relief is limited to 100% of your earnings (or to £3,600 if you have no earnings). However, for high earners, the Annual Allowance may be as low as £10,000. There is one saving grace known as Carry forward, where your unused Annual Allowance can be rolled over from the previous three years. Carry forward allows you to make use of the unused annual allowances from the three previous tax years if you have used up your annual allowance for the current tax year, thus increasing the amount of tax relief you can claim.
If you’re unsure if you’re making the most of your available allowance, please book a free consultation with one of our Financial Advisers to learn more about tax allowances and how we can help you.
4. Take dividends
The Dividend Allowance lets investors and shareholders receive £1,000 of dividends free of Income Tax. Originally introduced in 2016, the limit has been reduced from £5,000 to its current level, so it would be wise to make use of the allowance whilst it is available.
Tax on dividends over the Dividend Allowance is;
• 8.75% for basic rate Income Tax-payers
• 33.75% for higher rate tax-payers
• 39.35% for additional rate
If you have the opportunity to take dividend income, from either a business you are involved in or your investment portfolio, this modest allowance can help you create a tax-efficient income. Every little saving here and there adds up!
5. Utilise your Capital Gains Tax allowance
The Annual Exempt Amount (AEA), where you don’t have to pay Capital Gains Tax on the sale profits from qualifying assets, is £6,000 for individuals and £3,000 for trusts. If your overall profit, or gain, is above this amount in a tax year, Capital Gains Tax (CGT) will be due. The bad news is that next tax year the exempt amount is reducing to £3,000 for individuals, so do make the most of this year’s allowance.
A further consideration; jointly owned assets can use both of your allowances should you sell and make a gain, but the exemption does not roll over from year to year. So, if you’re planning to sell a valuable qualifying asset and have already used your AEA, it might be worth considering delaying the sale until after April 6th. However, as every individual’s personal circumstances are different, so taking professional advice before acting is highly recommended.
6. Make gifts
If you’re trying to reduce or remove a potential Inheritance Tax (IHT) bill, making gifts to loved ones is one of the simplest methods. IHT at 40% is due on part of your estate when you die, if it’s over the Nil-Rate Band of £325,000. If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000. That’s £500,000 per person, including both the Nil-Rate Band and Residence Nil-Rate Band. Moreover, if you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.
By making gifts during your lifetime, you can effectively reduce the value of your estate. The annual gift allowance lets you give up to £3,000 immediately free of IHT. Unused allowance carries over just one year. Furthermore, you can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
There is also a ‘seven-year rule’, meaning gifts of any value are exempt from IHT if you live for at least seven years after making it. If you’d like to discuss the potential inheritance tax on your estate and the many ways you are able reduce it, please contact us.
What next?
There is valuable time left to make use of some valuable tax allowances. Some currently roll over, others don’t. If you can, it’s advisable to make use of every allowance you’re presented with whilst its available.
On April 6th, during the 2024/25 tax year, some personal allowances are changing. If you’d like to discuss what allowance you can utilise immediately or what opportunities the new limits offer in April, don’t hesitate to get in touch with one of our Financial Advisers.
You can book a free consultation with one of our Financial Advisers to learn more about your tax allowances and how we can help you.
Disclaimer
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