The 2022/23 UK tax year ends on 5 April.
At that time, various annual tax allowances expire and will no longer be available for you to make use of.
What’s more, in some cases the allowances are being reduced in future tax years so there’s an added incentive for you to make the most of them while you can.
So, find out about seven particular allowances that you need to be making use of before they disappear at midnight on 5 April.
1. The pension Annual Allowance
Your “Annual Allowance” is the amount you can contribute to your pension savings while still benefiting from tax relief.
In 2022/23, the Annual Allowance is the lower amount of £40,000 or 100% of your gross earnings.
Bear in mind that you may also be eligible to “carry forward” unused allowance for up to three previous tax years. If you have cash to invest, this gives you the chance to give your retirement fund a real boost if you’re approaching retirement or feel that you may not have contributed enough to it in recent years.
Such pension contributions are highly tax-efficient. Basic-rate tax relief is usually added automatically, and you can then claim higher rates of relief through your self-assessment tax return if you’re eligible.
If your spouse or partner isn’t earning, they can still contribute £2,880, and benefit from basic-rate tax relief of an additional £720 even if they are not paying tax.
However, if you’ve already started drawing flexibly from your accrued pension fund, tax relief is likely to be restricted by the Money Purchase Annual Allowance (MPAA). In effect, this reduces your Annual Allowance to just £4,000.
Next month I will focus in on a very useful piece of pension planning for UK returnees who already have a UK pension.
2. Your Capital Gains Tax exempt amount allowance
In the current 2022/23 tax year, you have a Capital Gains Tax (CGT) exempt amount of £12,300.
Profits in excess of that amount that you make from the sale of non-ISA investments and other assets, including property that’s not your primary residence, are subject to CGT.
This allowance is particularly relevant this year as it will be reduced from £12,300 to £6,000 in April 2023, and then halve to £3,000 in April 2024.
So, it’s well worth you trying to make the most of it in the current tax year if you’re able to bring forward the planned disposal of assets from future years.
It may also worth making use of your partner or spouse’s allowance by transferring assets between you to maximise your respective exempt amounts.
Our recent article about the CGT changes gives you more information about how you may be affected.
3. Your Dividend Allowance
Your Dividend Allowance allows you to receive a certain amount of dividends on your investments without incurring a tax charge.
Like your CGT exempt amount, this is also being reduced from 6 April 2023.
So, from that time it will go down from the current £2,000 to £1,000, and then in April 2024 it will fall further to just £500.
If you’re a company director, you can pay yourself up to £2,000 in dividends from your business without paying any Dividend Tax. This means you can boost your income without increasing your tax liability.
Again, if you don’t use your Dividend Allowance before the end of the tax year, you will lose it.
4. Your annual ISA allowance
In the 2022/23 tax year, you have an ISA allowance of £20,000.
You don’t pay Income Tax or Capital Gains Tax on your ISA profits. This makes them a tax-efficient way to save and invest money, so making the most of this allowance is a great way to boost your finances.
The £20,000 ISA allowance applies to all individuals, regardless of earnings, meaning you and your spouse or partner can contribute £40,000 between you in the current tax year.
5. The Junior ISA allowance for your children
As well as you own ISA allowance, you can also contribute up to £9,000 in the 2022/23 tax year to a Junior ISA (JISA) on behalf of your children if they are under 18.
By making regular JISA contributions you can build them a considerable sum that will stand them in good stead as they make their own way in the world.
Payments made from your capital will fall within your Inheritance Tax (IHT) small gift exemption of £250 a person each year, or your annual exemption of £3,000.
However, any contribution you make from capital above these thresholds could become liable for IHT if you die within seven years of making the payments.
An alternative to this is to demonstrate that they are being made from income and will not leave you in a financially vulnerable position.
Also remember that when your child reaches age 18, the JISA will automatically pass to them – so it’s worth considering how much capital you are comfortable relinquishing control of to an 18-year-old!
6. Income Tax relief on the Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) was introduced by the government in 1994 to help small companies raise funds.
As well as the potential for investment growth, as a private investor into an EIS-qualifying company you could receive very significant tax breaks.
You can claim up to 30% Income Tax relief on such investments, which can help offset an element of the risk normally associated with investing in small companies.
The maximum EIS investment that you can claim relief on in the current tax year is £1 million, which amounts to £300,000 of Income Tax relief.
You should be aware than investments in EIS are high risk as smaller companies can be more likely to fail than larger, well-established businesses.
Read more about Enterprise Investment Schemes in our blog.
7. Make gifts to reduce your IHT liability
You can help reduce the potential IHT liability on the value of your estate by making gifts.
You have an annual gift exemption of £3,000 for gifts to any one individual or across a number of people.
You can also carry forward any unused gift exemption for one year. Therefore the £3,000 exemption from the 2021/2022 tax year will drop out after the end of this tax year.
Read more about IHT gifts in our recent blog on the subject
Get in touch
If you want to know more about making the most of your end of tax year allowances, please get in touch.
You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.
The information contained in this article is based on the opinion of Charlton House Wealth Management and does not constitute financial advice or a recommendation to any investment or retirement strategy.
The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.