From the war in Ukraine to changes at Number 10 and fluctuating stock markets, 2022 was a tumultuous year, globally, politically, and economically. While 2022 is now behind us, the 2022/23 tax year still has a couple of months to run.
Jeremy Hunt’s autumn statement changes mean it is more important than ever that you are prepared for tax year end.
Keep reading for a look at why now is the perfect time to get end of tax year ready.
1. Maximize your pension’s tax efficiency by using your full Annual Allowance
The pension Annual Allowance is the amount you can pay into your pension during a single tax year and still receive tax relief, effectively a free top-up from the government.
Thanks to tax relief, a £100 increase to your pension fund only costs you £80 as a basic-rate taxpayer. As a higher- or additional-rate taxpayer, you could claim even more relief through your self-assessment tax return.
For the 2022/23 tax year, the Annual Allowance stands at £40,000 (or 100% of your pensionable earnings, if lower).
If you haven’t made full use of this allowance, and you can afford to make a top-up, do so now. Also, be aware that you can carry over any unused allowance for up to three years.
You might consider maximising your allowance as early as possible after April 5, 2023. That will allow your fund to grow quicker and benefit from the effects of compounding for longer.
2. Your unused ISA allowance can’t be carried forward so check in with it now
Your ISA allowance stands at £20,000 for the 2022/23 tax year. This is split between all ISAs you hold, so paying £15,000 into a Cash ISA would leave £5,000 for any Stocks and Shares ISAs you hold.
As with your pensions, ISAs are incredibly tax-efficient. You don’t pay tax on the interest you earn in a Cash ISA and any gains you make in a Stocks and Shares ISA are free of both Income Tax and Capital Gains Tax (CGT).
Unlike the annual allowance, though, your ISA Allowance can’t be carried forward. If you don’t make full use of your £20,000 subscription, the difference will be lost.
Check in with your ISAs now to see how much you paid in during the current tax year, then top up if you can afford to.
3. Your CGT annual exempt amount will fall from April
As part of the government’s plan to fill its fiscal black hole while stabilising the economy following the disastrous mini-Budget, Jeremy Hunt announced several allowance cuts in his autumn statement. One of these cuts was to the Capital Gains Tax (CGT) annual exempt amount.
Currently standing at £12,300 for the 2022/23 tax year, the CGT exemption will drop to £6,000 in April 2023, and to £3,000 in April 2024.
This will limit the profit you can make on company shares or second homes, for example, before CGT becomes payable (As mentioned previously, gains from a Stocks and Shares ISA are CGT-exempt).
Making full use of the exempt amount in this tax year is key, as it will fall quickly over the next two years.
4. Your Dividend Allowance is also due to fall next tax year
Your Dividend Allowance is the amount you can earn from dividends before you become liable for Dividend Tax.
Make full use of your £2,000 Dividend Allowance this tax year before it reduces to £1,000 in April 2023. It will reduce even further, to just £500, from April 2024.
5. Use your annual HMRC gifting exemptions to lower your IHT liability
Another announcement from Jeremy Hunt’s autumn statement was the extension to the Inheritance Tax (IHT) threshold freeze.
Several HMRC gifting exemptions allow you to make tax-free gifts each year. For example, you can:
- Use your annual exemption to gift up to £3,000 each year, split between as many people as you like
- Make as many small gifts of up to £250 each as you like, provided the person receiving the gift hasn’t already been the recipient of your full £3,000 annual exemption
- Use HMRC’s regular gifts from income exemption to make regular payments to an individual, as long as you can prove to HMRC that the gift is made from your regular income and doesn’t detrimentally affect your standard of living.
Get in touch
With the new chancellor announcing a raft of changes due to come into force in April, it’s never too early to get your finances in order ahead of the new tax year. Not only will you avoid last-minute panic, but you’ll also be making the most of current allowances before the changes occur.
If you’d like help to get your finances end of tax year ready, or you would like to discuss any other aspect of your long-term financial plans, contact us now to find out how our Chartered financial planners could help you.
Please note
This article is for information 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.
