Effectively using all of your annual tax deductions and allowances is always a good idea. It not only ensures that you don't pay more tax than necessary, but it can also help to increase the performance of your investments, supporting your financial objectives.

This year, it's more important than ever. As a part of, Chancellor, Jeremy Hunt’s efforts to strengthen the nation's finances, he announced cutbacks to a number of important allowances used by investors in his first Autumn Statement.

‘Use them or lose them’ is our message.

Here, you can read about what needs to be done before this tax year ends, on 5^th April 2023.

What is the capital gains tax allowance?

For the current tax year, 2022-2023, the capital gains tax (CGT) allowance is £12,300. This indicates that you can realise gains of up to £12,300 when you sell investments before having to pay CGT.

However, as a result of the Chancellor's announcement in the Autumn Statement, the CGT allowance will more than halve to £6,000 as of April 6, 2023, before halving once again to just £3,000 annually in 2024/25.

CGT is now taxed at 10% for basic-rate taxpayers and 20% for higher or additional-rate taxpayers (18% and 28% for residential property sales).

How can I reduce how recent tax changes affect me?

Investors can reduce their CGT liability in a number of ways, such as by disposing of assets over several tax years and using their spouse's allowance.

However, investors with assets to sell should check in with us and begin making plans now that such big reductions to the allowance are on the horizon.

Changes to dividend allowance

The dividend allowance was another target for the Chancellor. Currently, you can make up to £2,000 from corporate dividends before dividend tax kicks in.

You must pay dividend tax on any dividends you receive from company shares, including dividends received from money invested in investment trusts and funds that are held collectively.

The dividend allowance is currently £2,000. However in the new tax year, 2023/24, it will be cut in half to £1,000 and then again to £500 in 2024/25.

For additional-rate taxpayers, the dividend tax rate is 39.35%, for higher-rate taxpayers, it’s 33.75% and for basic-rate taxpayers, it’s 8.75% 

Use your allowances

Holding your investments in tax-efficient vehicles, such as pensions or stocks and shares ISAs, will protect them from dividend tax and CGT.

It's worth talking to a financial adviser about additional options if your ISA or pension have already been completely funded. You might want to think about a pension for a spouse, child or grandchild, for example. You could also look at family ISAs – a Junior ISA can be a tax-efficient option to set aside a one-time sum of money for your children. The annual allowance for Junior ISAs is £9,000 (2022–2023).

It makes sense to consider where you keep your cash savings as well. Despite the availability of Cash ISAs, the personal savings allowance enables basic-rate taxpayers to earn £1,000 in interest on savings tax-free, and higher-rate taxpayers to earn up to £500 in interest before they need to worry about paying taxes. So, depending on your situation, you might be better off preserving your money in one of these ways. Accordingly, you could be better off keeping your ISA allotment for stocks and shares, depending on your specific situation.

The value of financial advice

Consider talking with a financial adviser all year long, rather than just at the end of the tax year, so they can make sure you use all available exemptions and deductions.

This can not only increase your wealth, but it can also improve your financial wellbeing by relieving you of any stress associated with paying too much tax or not paying enough.

Planning for the end of the tax year shouldn't be rushed, but given that certain allowances will be reduced in the following years, contact us to see if you can lessen their effects by making preparations now.

For more information on maximising your tax allowances, get in touch with us.

Disclaimer: the capital security associated with an investment in a Stocks and Shares ISA or a deposit with a bank or building society is not the same as that associated with a Cash ISA.

Disclaimer: tax rates, bases, and exemptions are subject to change at any time and are often based on the circumstances of each individual.

Disclaimer: Whateley Wealth Management is not responsible for any external site content.

Disclaimer: the purpose of this blog is to provide generic information and should not be interpreted as a personal recommendation or advice.

The Financial Conduct Authority does not regulate tax planning.

 

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