As the end of the 2023/24 tax year is fast approaching, you may want to take advantage of several allowances and exemptions before they reset.
Since some of these don’t carry forward to the following year, it could be prudent to make the most of these allowances before the new tax year begins to make your wealth go further.
To help you, this comprehensive free guide includes lots of useful information about the allowances you may want to use before the new tax year. Download your guide now or read on for a summary of the key points regarding these allowances and exemptions, some of which will be changing in the next tax year.
1. Marriage Allowance
If you’re married or in a civil partnership, you may be able to transfer some of your unused Personal Allowance to your spouse/partner.
To be eligible for the Marriage Allowance, the higher earner must be a basic-rate taxpayer, and the lower earner must earn less than the Personal Allowance. Moreover, you need to be married or in a civil partnership.
By making the most of the Marriage Allowance, the lower earner transfers up to £1,260 of their Personal Allowance, potentially helping you save up to £252 in Income Tax for the 2023/24 financial year.
2. ISA allowance
Each year, you can contribute a specific sum to all your ISAs. This stands at £20,000 as of the 2023/24 tax year.
Making the most of your ISA allowance is important as you don’t pay Capital Gains Tax (CGT) or Dividend Tax on any investments you hold in a Stocks and Shares ISA, and you don’t pay any tax on interest accrued through a Cash ISA.
If you don’t use your full ISA allowance in any given year, you typically lose it since it doesn’t carry forward.
3. Junior ISA allowance
A Junior ISA (JISA) allows you to save a nest egg for your child or grandchild’s future.
JISAs have a separate allowance from their adult counterparts, standing at £9,000 in the 2023/24 tax year.
By utilising the entire JISA allowance before the start of the new financial year, you could maximise the tax-efficient savings you’re setting aside for a child or grandchild, ultimately allowing them to secure their financial future.
Again, you can’t carry forward any unused JISA allowance so it’s important to make the most of it before 5 April.
4. Dividend Allowance
If you hold shares in a company that pays dividends, or you own your business and draw income as dividends, some of these may be subject to tax.
You typically don’t pay any tax on dividends that fall within your £12,570 Personal Allowance, and you have an additional Dividend Allowance of £1,000 in the 2023/24 tax year. So, drawing dividends up to this amount can help you to maximise your tax-free income.
Any dividends you gain that exceed this threshold are typically taxed based on your marginal rate of Income Tax. Then, the tax rate on dividends includes:
- 8.75% for basic-rate taxpayers
- 33.75% for higher-rate taxpayers
- 39.35% for additional-rate taxpayers.
Additionally, the government is decreasing the Dividend Allowance to £500 on 6 April 2024, so it‘s essential to keep this in mind if you already earn a significant amount from dividends each year.
5. Capital Gains Tax Annual Exempt Amount
CGT is a tax you may pay on any profits earned when you sell certain assets, such as non-ISA investments, a second home, or valuable personal possessions such as art or jewellery.
Each year, you can earn profits up to a certain value before you pay CGT. This is called the “Annual Exempt Amount”, and it stands at £6,000 as of 2023/24.
By making full use of your Annual Exempt Amount before the tax year end, you could reduce the amount of CGT you pay. Better yet, you and your spouse or civil partner each have your own exemption, meaning you could transfer assets between you without incurring CGT.
6. Pension Annual Allowance
Perhaps the most significant benefit of contributing to your pension is receiving tax relief at your marginal rate of Income Tax.
As of the 2023/24 tax year, most people can contribute up to £60,000 into their pension without incurring an additional tax charge. This includes your own contributions, employer contributions, and tax relief.
While you can carry forward this Annual Allowance for up to three tax years, it may still be wise to use up as much as possible before the end of the tax year to ensure you’re maximising your tax-efficient pension savings.
7. Inheritance Tax annual exemption
When you pass away, your loved ones typically pay Inheritance Tax (IHT) on the value of your estate that exceeds the nil-rate bands that are available.
To reduce the value of your estate and limit a potential IHT bill, you could gift some of your wealth. You have an IHT annual exemption of £3,000 in the 2023/24 tax year, and any gifts made within this threshold immediately fall outside your estate for IHT purposes. You can also carry forward any unused exemption for one tax year.
Using your full allowance each tax year could help you reduce the amount of IHT your loved ones may pay on your estate.
Contact us to find out how to use your allowances in 2023/24 and beyond
Download our free tax year end guide to find out more.
If you’d like to discuss how to make the most of these allowances and exemptions so you retain more of your wealth, we can help.
Please contact us to talk about your finances and how allowances may help you get more out of your money.
Please note
This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate and tax planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The guide is based on our current understanding of legislation, which is subject to change.
