Make the most of your tax allowances – and pay less tax

12th December 2023

The amount of money you can claim tax relief on is dropping again in 2024/25. Time for a heads-up with your financial adviser, before tax year-end, to make sure you’re making the most of your allowances.

At a glance

  • There are significant changes to tax allowances ahead, affecting Capital Gains Tax and Dividend Tax.
  • It’s even more important to make the most of your pensions and ISAs,, as well as gifting allowances ahead of tax year-end.
  • Speak to us and we can help your money to work as tax-efficiently as possible, so you pay the least amount of tax.

You’re probably used to getting a nudge from your financial adviser or accountant around February or March, reminding you to take advantage of your annual tax reliefs and allowances. But, with many families still having to be careful with their budgets, there’s often not much, if any, left over to put into your savings or investments.

So, the last thing you want to do is pay any more tax than you have to on anything you save or earn.

There are changes to Capital Gains Tax and Dividend Tax allowances, that you need to know about. Plus the other tax allowances that you’re entitled to. Use every allowance you can - it really can make a difference.

Here’s what you need to know before the end of this tax year (5 April 2024) and how we can help.

What is the Capital Gains Tax allowance?

The Capital Gains Tax (CGT) allowance for the current tax year (2023/24) is now £6,000 – half what it was a year ago. So, if you’re planning to sell investments, or property, other than your main resident, you can keep £6,000 before you pay any CGT.

The watch-out is that the CGT allowance is halving again in the 2024/25 tax year to £3,000. So, it might be a wise move to sell an asset before this tax year-end, if it suits you.

The current rates for CGT are 10% for basic-rate taxpayers and 20% if you pay the higher or additional rate (18% and 28% if you sell any property that isn't your main residence).

How can I pay less CGT?

There are a number of steps you can take to mitigate a CGT bill, including selling off assets over several tax years, or taking advantage of a spouse or civil partner’s allowance as well as your own.

If you’re thinking about spreading the sale of your assets to bring your CGT bill down, do check in with your financial adviser, to see how it might affect your long-term plans.

Has the Dividend Tax allowance changed?

If you get income from dividends, you may be dismayed to discover that the government is changing the rules on Dividend Tax too, in 2024/25. Dividend Tax is charged on anything you earn from company shares, including dividends from money held in collective investments such as funds and investment trusts.

Your current Dividend Tax allowance is £1,000, so some of the money you earn from company dividends is tax-free. But from 5 April 2024, that allowance will halve to £500

If you’re a basic-rate taxpayer, you’ll pay 8.75% Dividend Tax. If you’re a higher- rate taxpayer this will be 33.75%, and 39.35% for additional-rate taxpayers.

How can I shelter my money from CGT or Dividend Tax?

You can shelter your investments from Dividend Tax and CGT by moving them into more tax-efficient wrappers, such as a pension or a Stocks & Shares ISA.

Each year, you can pay up to £20,000 into an ISA, or you can save into a pension and subject to certain limits claim tax relief, subject to certain limits.

Currently, you can put away £60,000 a year into your pension , or 100% of your income if you earn less than that.

If you’ve already maxed out your ISA, it’s worth talking to us for other ideas. You could think about opening a pension for another member of the family – your partner, or a new child or grandchild. Or you could open a Junior ISA or JISA. Junior ISAs currently have a lower tax allowance of £9,000 a year (2023/24). Only a parent or legal guardian can open a JISA or a junior pension. After that, anyone can put money in.

JISAs are often overlooked, but they’re a tax-effective way of saving a lump sum for younger members of the family, even godchildren. Everyone wins – your family doesn’t need to wait for an inheritance lump sum, and you’ll get the tax benefit.

Am I paying too much tax on my cash savings?

It's sensible to think about where you hold your cash savings, too. As a basic-rate taxpayer, you can earn £1,000 of interest on your savings, tax free. Higher-rate taxpayers can earn up to £500 in interest before they need to worry about tax. This is called your Personal Savings Allowance. Depending on your circumstances, you may be better off using your £20,000 annual ISA allowance for a Stocks and Shares or Cash ISA or Cash if you have these.

How much money can I give to a family member?

If it’s likely that your estate will be liable to Inheritance Tax (IHT) when you die, you may also want to think about how you can reduce the size of your estate – and IHT bill – by using your gifting allowances.

Each year, you can give away up to £3,000 (or £6,000 between couples).

And if you’ll be celebrating a marriage or civil partnership in the family shortly, you can also gift up to £5,000. It’s also fine to make any number of smaller gifts up to £250 in value.

Always keep a record of the dates and amounts of any gifts, and who received them. It makes winding up an estate much easier for your family if they don’t have to hunt down dates and details or remember the gifts themselves. Your SJP Partner should also keep a record of any gifts you make, too.

Using your tax allowances

The majority of allowances work on an annual basis. That means if you don’t use an allowance before tax year-end – 5 April – you lose it.

Two notable exceptions are pensions and the IHT gifting allowance. Carry-forward rules enable you to use any unused pension allowances from the past three years, while any unused IHT gifting allowance from the previous year can be used. This means a couple gifting for the first time could legally gift £12,000 tax free to their family – since they can both gift two years’ worth of allowances.

Staying tax-savvy throughout the year

Talk to us throughout the year –not just at tax year-end. Regular reviews remind you to take advantage of reliefs and allowances wherever you can. Especially if there’s been a change in the family circumstances, like a birth, a wedding, a change of job or salary increase.

It’ll add to your peace of mind too. You won’t need to worry about paying too much tax or too little, or breaching rules you didn’t know had changed.

Tax year-end planning needn’t be a rush, but with some key allowances being reduced, it’s worth checking in with us to see if you can mitigate any impact by planning ahead.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment in Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that Cash ISAs are not available through St. James’s Place.

Make the most of your tax allowances – and pay less tax
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