With inflation still above the Bank of England’s target rate, and a number of tax thresholds frozen, it’s particularly important to make full use of annual allowances and exemptions that enable you to lower your tax burden and build up wealth. This article highlights some key tips that you could consider applying before the tax year ends.
Optimise your pension annual allowance
Contributing to a pension plan annually can significantly reduce your taxable income. UK savers can now pay up to £60,000 into their pension annually and benefit from tax relief on these contributions, in light of the 50% increase to the annual allowance as of 6 April 2023. Optimising this allowance can provide a valuable boost to your retirement pot, while lowering your tax liability.
Tip: If you have unused annual allowances from the three previous tax years you may be able to contribute a larger sum via the ‘carry forward’ rule.
Investment ISAs offer tax-free gains
Like pensions, ISAs are one of the two main pillars of tax-efficient wealth building. Each UK adult benefits from an ISA allowance of £20,000, with any interest or gains shielded from tax. The ISA annual allowance can’t be carried over into a new tax year – can you and/or family members pay more into ISAs before 6 April?
Tip: You should always look to make full use of your annual allowance if you have an investment ISA before paying into a general investment account (GIA). GIAs provide flexible access and there is no limit on contributions, but they don’t benefit from the same tax shelters.
Harvesting investment gains
The annual capital gains tax (CGT) exemption is £6,000. This will be halved to £3,000 from April 2024, which will place even more emphasis on optimising ISAs and pensions, where any investment gains are exempt from tax. However, a couple can still make substantial savings by ‘harvesting’ investment gains in each tax year and applying their annual CGT exemption, rather than letting gains build up and facing a large tax charge down the line.
Tip: A professional investment management team can implement annual capital gains harvesting, to ensure this ‘use it or lose it’ allowance is being appropriately applied before the end of each tax year.
Doing the basics right in each tax year can substantially improve long-term financial outcomes and your overall retirement prospects. Find out more about planning for retirement by calling 03300 564 446, or get in touch using our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
