5 simple steps that could help you to navigate the tax year end successfully

The end of the tax year is a great time to review your finances and complete any tasks you might have forgotten about or struggled to find the time to complete. On 6 April each year, there are also several tax allowances that reset. If you haven’t made the most of them throughout the tax year, you will lose the allowance. Read on to discover five practical steps to take before midnight on 5 April to make the most of your tax allowances and navigate the tax year end successfully.

  1. Make the most of your Annual Allowance with pension contributions

The Annual Allowance is the gross amount that you can contribute to your pension each tax year before you incur a tax charge. This includes:

  • Your personal contributions
  • Tax relief
  • Employer contributions, if applicable.

In 2023/24, the Annual Allowance is £60,000 or 100% of your earnings, whichever is lower.

If you are a basic-rate taxpayer, you are entitled to 20% tax relief on your pension contributions. This means that £100 deposited in your pension would only “cost” you £80.

Most pension providers will add basic-rate tax relief to your pension pot automatically. If you are a higher- or additional-rate taxpayer, you will need to claim the rest of your tax relief separately, either through your self-assessment tax return or by contacting HMRC directly.

You may be able to “carry forward” any unused Annual Allowance from the previous three tax years, which could enable you to contribute more to your pension before incurring a tax charge.

  1. Top up ISAs to make the most of your ISA allowance

An ISA is a tax-efficient way to build up your savings and investments because the interest or returns that your money generates within them is shielded from Income Tax or Capital Gains Tax.

In 2023/24, you can contribute a total of £20,000 into any ISAs you hold. This is a gross threshold, so if you have both a Cash ISA and a Stocks and Shares ISA, it’s important to keep track of how much you are contributing to each to avoid accidentally exceeding the limit.

Remember that if you have children or grandchildren who have savings in a Junior ISA, you may also wish to top this up for them before the tax year end.

  1. Make the most of the Dividend Allowance

If you own shares in a company or as part of a portfolio that isn’t held in a tax-efficient wrapper, you may be taxed on dividends you receive that exceed your Dividend Allowance.

In 2023/24, the Dividend Allowance is £1,000, and you won’t be taxed on dividend income that falls within your Personal Allowance. If you have exceeded both of these, you may be taxed at your marginal rate of Income Tax.

The rate that you will be taxed on your dividend income is as follows.

Income Tax band           Tax rate on dividends that exceed your allowance

Basic rate          8.75%

Higher rate       33.75%

Additional rate  39.35%

It’s worth remembering that the Dividend Allowance will fall to £500 in 2024/25, as such you may want to consider making the most of the current allowance before the next tax year begins.

  1. Consider using your Capital Gains Tax annual exemption

Capital Gains Tax (CGT) may be payable on the profit that you make from selling assets such as:

  • Business assets
  • Property that isn’t your primary residence
  • Shares that aren’t held in a tax-efficient wrapper
  • Personal possessions that are worth more than £6,000 (not including your car).

The rate of CGT that you are charged depends on your marginal rate of Income Tax and the type of asset you have disposed of.

If you are a higher- or additional-rate taxpayer, you’ll pay CGT at a rate of:

  • 28% on your gains from residential property
  • 20% on your gains from other chargeable assets.

If you are a basic-rate taxpayer, the rate that you pay will depend on the amount of profit you have made and the type of asset you have disposed of. You can learn more on the government website or by consulting your financial planner to help you navigate the tax year end successfully.

It’s important to note that you don’t pay CGT on the total amount that you make from the sale. The tax is applied to profits that exceed the Annual Exempt Amount.

In 2023/24, the CGT Annual Exempt Amount is £6,000, but this will fall to £3,000 in 2024/25. So, it may be worth making the most of the higher exemption before the end of 2023/24.

  1. Reduce your Inheritance Tax liability with financial gifts

If you think your estate may be liable for Inheritance Tax (IHT) after you pass away, you could reduce the value of your estate using financial gifts.

Each tax year, there are a few allowances that mean the gifts you give are immediately exempt from your estate for IHT purposes. These include the following.

  • The annual exemption means that you can gift up to £3,000 each tax year.
  • You can give unlimited gifts of £250 to anyone who hasn’t received a financial gift under your £3,000 annual exemption.
  • Make unlimited regular monthly financial gifts provided they are taken from surplus income (not savings) and won’t be detrimental to your standard of living.
  • You can gift your child up to £5,000 for the specific purpose of funding their wedding or civil ceremony. Alternatively, you can gift £2,500 to your grandchild or great-grandchild for this purpose, or £1,000 to anybody else.

So, if you wish to reduce the value of your estate and mitigate a potential IHT bill, it may be worth seeing if you can make the most of these allowances before the tax year ends.

You can of course give more financial gifts than this during each tax year, but any that exceed these allowances could be liable for IHT depending on your circumstances.

Get in touch

If you’d like to know more about how you can build your wealth tax-efficiently, we can help. Email us at info@bee-sure.co.uk, submit a contact form on our website, or call us on 0333 305 6692.

Please note

This article “navigate the tax year end successfully” is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pension Regulator.

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.

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