Get the most from the 2023-24 tax year
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The UK tax year, lasting from 6 April until 5 April, is an important “window” to take advantage of allowances and other tax benefits which could put you in a better financial position.
In 2023-24, some rules have changed – especially in light of the Chancellor’s Autumn Statement in November 2022. In particular, some tax-free allowances have shrunk and are set to reduce further in 2024. So, the present tax year is a good opportunity to maximise them, while you can.
Below, our Grantham financial planners explain some of the key allowances on offer in the present tax year, some important tax changes and how to make the most of 2023-24.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
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Why is the tax year important?
When 6 April arrives each year, certain allowances are “refreshed” for UK taxpayers. For instance, your £20,000 ISA allowance is renewed. Whilst this presents a fresh opportunity to put more into your ISA, any unused ISA allowance from the previous year will be lost.
For instance, suppose you put £15,000 into your ISAs in 2022-23 and then 6 April 2023 arrives. At this point, the £5,000 allowance that you could have used is irretrievably gone. You cannot “carry over” unused allowance to the following tax year.
This is a good reason to plan ahead with your tax allowances, to help make sure you make the most of them. Leaving your ISA planning until January, February or March can restrict your ability to do this. At this point, perhaps you lack a large enough lump sum to maximise your ISA allowance. However, making regular contributions earlier in the tax year could result in a larger total ISA contribution for the tax year.
The tax year is also vital for sole traders and other taxpayers who submit a Self Assessment Tax Return. Although your online Self Assessment must be submitted by 31 January to avoid penalties, the previous April – April period will be vital in determining your tax liability.
What is changing in the 2023-24 tax year?
Just as your ISA allowance refreshes on 6 April, other allowances do the same. In particular, your Annual Exempt Amount – the total you can earn tax-free from capital gains – and your tax-free dividend allowance start anew.
In the previous tax year, 2022-23, the former allowed an individual to earn up to £12,300 from capital gains (outside of an ISA) without capital gains tax (CGT). However, in the 2023-24 tax year, this has reduced to £6,000 per year. In 2024, it has been announced that this is to fall even more to £3,000.
This means that the 2023-24 tax year is very important for investors who are looking to maximise their tax-free returns. For some individuals, this could be a key time to start moving certain investments from their general investment account(s) into their ISAs, where capital gains can be generated without tax.
The tax-free dividend allowance has also gone down, from £2,000 per year in 2022-23 to £1,000 in 2023-24. A further reduction in the allowance has been announced for 2024, down to £500. Again, if you believe your investments could be affected, consider speaking with a financial adviser about how you could minimise a needless tax liability.
Other key changes in 2023-24 include:
The abolition of the Lifetime Allowance charge, which formerly “capped” the total value you could hold in your pensions, tax-free, at £1,073,100.
The reduction of the threshold for the Additional Rate (45%) of Income Tax, down from £150,000 of earnings per year to £125,140.
The 50% increase in the maximum annual allowance for pension contributions, from £40,000 to £60,000.
How can I get the most out of the 2023-24 tax year?
Consider planning ahead, as early as possible. In June 2023 there are still ten months left in the 2023-24 tax year. How much could you contribute to your ISA(s) over that time?
Try to avoid the temptation to leave things until the last minute, when the April deadline is approaching. At this time, accountants and financial planners are likely to be far busier and you may be more limited in your financial options.
If you are nearing a higher Income Tax bracket, consider speaking with a financial adviser about your options. The earlier you do this in the tax year, the more opportunities there may be to save on needless tax. One idea could be to explore a “salary sacrifice” scheme with your employer, which could increase your tax-home pay (e.g. due to lower National Insurance contributions).
Planning ahead in the tax year generally gives you more time to make important financial decisions. If you are thinking about making up to £3,000 in gifts (i.e. using up your annual exemption to minimise inheritance tax), for instance, then perhaps you could time these for birthdays of your loved ones – or, for Christmas?
Conclusion & invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
