2023/24 Tax Year: Understanding Your Annual Allowances

The 2023/24 tax year is almost over, and with it will vanish some of your most valuable tax tools – your annual allowances. 

Some can be rolled over to the next tax year, but others will be lost for good at the stroke of midnight on April 5th.

At Continuum we are looking at those allowances, and what you can do with them now to keep more of your money out of reach of the tax man.

Your ISA allowance

Your ISA allowance might be the most important tax concession of all. ISAs are exempt from income tax and capital gains tax, making them so valuable, the government sets a limit on how much you can invest. This has remained at £20,000 for several years now.  Investing as much as you can each year is usually a sound decision, and investing with the most suitable ISA is vital. Although the Chancellor has announced that a new British ISA will be rolled out to investors, which will allow savers to invest an additional £5,000 a year tax-free in UK assets, this is not made available as of yet, as it is still at consultation stage.

The ISA allowance is annual – if you don’t use it before April 5th, you can’t backdate it. The chance to keep cash away from the taxman is gone for good.

Call us at Continuum for help with your ISA entitlement. 

Capital Gains Tax allowance

Capital Gains Tax is charged on the profit you make when you sell an asset, such as investment or property other than your home. 

The allowance for CGT is the Annual Exempt Amount (AEA). For 2023/24, the AEA is £6,000 for individuals and personal representatives, and £3,000 for trustees. However, for 2024/25 tax year, the AEA will be £3,000 for individuals and personal representatives, and £1,500 for most trustees.

It may make sense, if needed, to dispose of assets this year to make use of the larger allowance.

Call us at Continuum for help with CGT– which might involve taking advantage of allowances from previous years.

From April 6, your allowances for dividend income and capital gains fall significantly. You could consider using this year’s capital gains allowance – and any capital losses – to switch as much as you can to tax-efficient accounts and protect yourself from future tax bills.

Personal allowance

Every taxpayer has a personal allowance, the amount they can earn each year without paying tax.  For the 2023/24 tax year, you can earn £12,570 before the taxman takes his cut (although it starts to taper away by £1 for every £2 that you earn over £100,000. So, anyone who earns more than £125,140 will pay tax on all the income they earn. If you live in Scotland the income tax bands are different).

However, if you are married or in a civil partnership, you may be able to save by structuring your finances as a couple to use two tax allowances if one of you pays tax at a lower rate than the other.  If one transfers income-generating investments to the other to use their personal allowance, it might help you cut tax overall.

Getting expert help from a Continuum expert could help you take advantage of this concession.

Saver’s allowance

Personal Savings Allowance or PSA means that most savers have got out of the habit of paying tax on the interest from their savings – especially as in recent years savings generated very little interest to begin with.

Your PSA depends on the income tax band you are in. Basic rate taxpayers have a £1,000 allowance. Higher rate taxpayers receive a £500 allowance. Additional rate taxpayers have no PSA, and must pay tax on all the interest their savings earn. 

Increased interest rates mean you could easily find your savings mean a tax liability.

A traditional savings product may not be a tax efficient choice for you in the future, particularly if you are a higher rate taxpayer. Call us at Continuum to discuss some more efficient solutions – such as ISA investments.

Dividend allowance

You may get a dividend payment from shares in a company, but you don’t pay tax on dividend income that falls within your Personal Allowance or the dividend allowance, which is £1000 for the current tax year – but which falls to £500 for 2024/25.

Call us at Continuum to discuss ways to make the most of your dividend allowance -such as protection dividend with an ISA.

Pension allowance

The pension allowance is currently £60,000, or the value of your whole earnings – whichever is the lower. 

Your pension may be your most important investment of all. Getting the pension arrangements that are most beneficial to you – and not the taxman – is essential.  

At Continuum, we can help you structure your pension in the most appropriate way, – and potentially take advantage of allowances from previous years.

Gift Allowances

Each tax year you are allowed to give £3,000 as a gift tax free, without it being added to the value of your estate. This is called the ‘annual exemption’. Apart from gifts to a spouse or civil partner gifts are subject to allowances.  You can make unlimited individual gifts of up to £250 per person (however, this only applies if you have not used another allowance -including the £3,000 annual exemption- on the same person) or wedding gifts of up to £5,000 for a child, £2,500 for a grandchild or great-grandchild, or £1,000 to anybody else.

Giving away assets can reduce your estate, which in turn reduces liability for inheritance tax. At Continuum we can help you see how.

Why call Continuum now? 

The rules on allowances are clear – but there are many ways to make the most of them. At Continuum we can help you use them as a part of an integrated financial strategy, designed to help you make the most of all your money. 

The time is running out for your 2023/24 allowances. Why not call us today?

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable savings or investment strategy, you should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate deposit accounts, taxation and trust advice or will writing.

Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change.

A pension is a long-term investment, the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken.

The value and returns of an investment are not guaranteed, investors may lose some or all of their investment. Capital is at risk.

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