It may feel like 2024 has just arrived, but now is an excellent time to start planning ahead for the tax year-end so you can make the most of any available allowances and, in many cases, reduce how much tax you pay.
The 2023/24 tax year will end on 5 April 2024. While this date may seem like a long way off, if you leave your tax year planning until closer to the deadline, you may inadvertently overlook some of the allowances that may be useful for you.
The benefits of planning ahead for the tax year-end
1. Maximising allowances
Many tax-efficient allowances will reset on the 5 April 2024. This includes:
- ISA Allowance. Having an ISA is a tax-efficient way to invest your money, as you won’t be charged tax on the interest or returns you may earn. But there is a limit to the amount you can put into an ISA in a tax year. The ISA allowance for 2023/24 is set at £20,000, while the ISA limit for Junior ISAs is £9,000.
- Annual Allowance. This refers to the amount you can tax-efficiently save into a pension. While there’s no limit on the amount that can be saved into your pensions each tax year, there is a limit on the total amount that can be saved each tax year with tax relief applying and before a tax charge might apply. The limit is currently £60,000.
- Dividend Allowance. The Dividend Allowance is the amount you can receive in dividends each tax year before you will need to pay tax. For the 2023/24 tax year, the tax-free dividend allowance has been reduced to £1,000.
- Capital Gains Tax Annual Exempt Amount. This is the amount you can earn in profit when selling certain items before tax is due. You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The Annual Exempt Amount this tax year is £6,000, and £3,000 for trusts.
By planning for the end of the tax year now, you will give yourself plenty of time to review which tax allowances you can and should use. Making the most of these allowances may reduce your tax liability and ultimately help your money to go further.
2. IHT planning
For individuals with sizeable estates, planning for the tax year end is an opportunity to review inheritance tax implications. This may involve making gifts, setting up trusts, or considering other estate planning strategies, which may take time to implement.
3. Avoid delays
The end of the tax year is a busy time for financial providers, such as pension providers or accountants. If you want to make a change, leaving it until the last minute could mean you’re affected by delays and that you end up missing out. Taking steps now means you can make decisions without the pressure to do so quickly to meet deadlines.
4. Spread out contributions you want to make
As part of your end of tax year plan, you may want to maximise contributions to your ISA or pension. Doing so can help your money go further and assist you in reaching long-term goals. By setting out your plans now, you can spread out these contributions over several months. It also means you have longer if you want to move illiquid assets into tax-efficient wrappers.
Making tax-efficient allowances part of your financial plan
When you’re making a financial plan, you should consider the allowances that will help you reach your goals.
For instance, if you’re saving for retirement, maximising your pension Annual Allowance each year could help you save more for your future. Or considering the Capital Gains Tax annual exempt amount when planning how you’ll dispose of assets can significantly reduce your tax bill.
As well as making allowances part of your plan now, you should also review them each year. Allowances can change, as can your goals, which can affect which allowances make sense for your financial plan.
If you have any questions about planning ahead for the tax year-end, please get in touch with the team at George Square Financial Management.