With the end of the tax year fast approaching, have you thought about whether there is anything further you can do to make the most of your tax allowances before time runs out?
1/ Pension payments
Are you aware that you can save up to £40,000 into a pension completely tax-free every year? If not, looking to increase your pension payments could be a great way to maximise these tax savings. This equates to 20% tax relief on contributions for a standard-rate taxpayer and 40% for higher-rate taxpayers.
There is also the possibility to carry forward any unused allowances from the previous three tax years, this could potentially give you a huge boost but is subject to a number of factors so it’s important to seek advice prior to making extra pension contributions.
Making a pension contribution will also reduce your total taxable income which can be beneficial for the purposes of child benefit. For instance, if you earn between £50,000 and £60,000, you lose 1% of child benefit for every £100 over £50,000 – this means child benefit is lost at £60,000. However, if making a pension contribution brings your total taxable income below £60,000, child benefit would become partially or fully payable once more.
The same is true for those who lose their personal allowance earning between £100,000 and £125,140, making pension contributions can return part or all your personal allowance, avoiding 60% tax.
2/ Capital gains allowance
Capital gains tax is based on the gain you make from the value of your assets and can include things such as a second home, stocks, shares, or jewellery.
You will be required to pay capital gains tax when you sell an asset for profit. Before the 5 April 2023, you have a tax-free allowance of £12,300, after which the rate is dependent on the level of income tax you pay (10% for basic-rate taxpayers and 20% for higher-rate payers or 18% and 28% if you’re selling a property).
However, from 6 April 2023, the capital gains allowance will reduce to £6,000 and from 6 April 2024, it will reduce further to £3,000.
You aren’t able to carry any capital gains allowance over to the following year so it is important that you move quickly if you’re planning on selling any assets as you only have until 5 April to benefit from the larger allowance.
3/ Gifting Allowance
You are able to gift up to £3,000 each year completely free of any inheritance tax (IHT) liability, this can be a useful way to reduce a potential inheritance tax bill, as well as helping out your family with a financial gift.
The tax-free inheritance threshold is £325,000 per person, above which 40% rate of tax is due (subject to other allowances).
You are able to gift more should you wish but if you died within seven years of the gift, the recipient could be subject to a large IHT bill. You are also able to carry over your allowance to the following tax year so if you haven’t used any of your allowance during a tax year, you could potentially gift up to £6,000 without a tax liability.
4/ Lifetime ISA
Perhaps you’re saving a deposit for your first home, but if you aren’t saving that money into a Lifetime ISA, you could be missing out on an annual bonus of £1,000 paid for by the government.
Although you can only use the money you save to buy a property (below £450,000), if you’re aged 18-39 and haven’t yet bought your first home, you are able to save up to £4,000 a year and you will receive an extra 25% on top! If the money isn’t used to buy your first home, you wouldn’t benefit from the bonus. This could help to get you onto the property ladder sooner.
5/ ISA top up
You can top up your ISA up to a maximum of £20,000 per year and you won’t pay any tax on the interest, withdrawals or any profits you make. Therefore, if you haven’t reached your limit for the year, it could be worth considering transferring some of your savings into your ISA to ensure you are making your money work as hard as possible.
Get in touch
For further information or advice on how you can ensure you’re doing all you can to maximise your tax allowances, contact a member of our financial planning team today to talk through your personal circumstances by emailing financialplanning@pmm.co.uk or call 01254 679131.
The information contained within this article is purely for information purposes and does not constitute financial advice.