The Early Bird Gets the Worm: Making the Most of Your 2023/2024 Tax Year Allowances

Individual Savings Accounts (ISAs)
You can contribute up to £20,000 to your ISA in the 2023/2024 tax year. You can allocate this to cash, stocks and shares, or a mix of both.

A cash ISA may suit your needs if you are building an emergency fund or saving for a short-term goal. A stocks and shares ISA is more likely to produce above-inflation growth over the longer term.

The income and growth on your ISA are not subject to tax and you can usually withdraw the money without penalty. Under current rules, you can replace any money withdrawn in the same tax year without using up any of your allowance, although not all providers allow this.

If you don’t use your ISA allowance each tax year, you can’t carry it forward. Using your allowance early in the tax year means that your contributions have more time to grow.

Pensions
Pensions are one of the most tax-efficient investments you can make, although there are a few limitations to be aware of.

If you are employed, it’s a good idea to make sure you are opted into your workplace pension scheme. Not only will you benefit from tax-free growth and tax relief on your contributions, but your employer will contribute as well.

If you are self-employed, or wish to make additional contributions, you should also consider paying into a personal pension. Company directors may find that making employer contributions through the business is the most efficient option, as you will also benefit from corporation tax relief.

In the same way as ISAs, making your pension contributions early gives you more time to benefit from tax-efficient growth. However, pensions have an additional advantage, as you can carry forward contributions from up to three previous tax years.

Capital Gains Exemptions
Capital gains tax (CGT) may be payable if you sell investments (including property) and realise a profit. It can also apply if you make gifts, as HMRC will take into account the market value at the time of the gift, even if no money changed hands.

You can realise gains of up to £6,000 this tax year without paying tax. This is reducing to £3,000 from 2024/2025, so if you do have assets to sell, you may wish to do this in the current tax year.

It can be beneficial to use your exemption each year, as this avoids large gains building up and becoming taxable later. You can do this by switching funds, moving money into your ISA, or taking withdrawals to supplement your income.

Income Tax Allowances
There are also a few income tax allowances that you can take advantage of:

• Personal allowance – this is currently £12,570 per year. You will use this automatically if you receive income from employment or a pension. If you run a company or take a flexible income from pensions or investments (for example, investment bonds), it’s worth planning your withdrawals to make the most of your personal allowance.
• Dividend allowance – you can receive up to £1,000 in dividend income before paying tax. This is reducing to £500 from April 2024, so if you have retained profits in a company, you may wish to tax advantage of this now.
• Savings allowances – you can earn up to £1,000 in tax-free interest if you are a basic rate taxpayer (£500 for a higher rate taxpayer and nil for an additional rate taxpayer). Additionally, if you earn under £17,570, you can receive up to £5,000 in interest without paying tax.
• Marriage allowance - a lower-earning spouse can transfer up to £1,260 of their tax-free personal allowance to their partner (providing the partner is a basic rate taxpayer), potentially reducing the household’s tax bill by up to £252.
• Assets can be passed between spouses to make use of both sets of allowances.

Saving for Children
You can contribute up to £9,000 per year into a Junior ISA for your children or other young relatives. In the same way as adult ISAs, the contributions benefit from tax-free growth.

Children can also benefit from pension contributions. You can contribute up to £2,880 (grossed up to £3,600) into a pension for a child.

Contributing early in the tax year provides greater scope for growth. It also means there is less chance of missing out on the allowances, as they can’t be carried forward into the next tax year.

Inheritance Tax Planning
Making gifts is one of the simplest ways to reduce your Inheritance Tax (IHT) liability.

You can gift up to £3,000 each tax year, which is immediately outside your estate. This exemption can be carried forward by up to one tax year. Some other exemptions are also available.

Any other gifts will drop out of your estate after seven years. Planning early means that the clock starts ticking sooner and there are more opportunities to reduce your IHT bill.

Advanced Tax Planning
There are a few investment options which offer significant tax advantages – however, they also carry substantial risks. These include Alternative Investment Market (AIM) shares, Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT), and unlisted business relief solutions.

Investing in a VCT or EIS can reduce your income tax bill by up to 30% (or 50% for some types of ‘seed’ EIS). You can also carry back EIS investments to an earlier tax year or use the investment to defer tax on realised gains. This gives you significant control over your tax bill.

AIM, EIS, and unlisted business relief solutions can also offer up to 100% relief from Inheritance Tax after they are held for two years.

It’s a good idea to look at the options early in the tax year, particularly if you wish to use the EIS carry back option.
These solutions are extremely complex and high risk, and advice is strongly recommended.

Please don’t hesitate to contact a member of the team to discuss financial planning options in the current tax year.