Investors and savers have just three days left to make the most of valuable tax perks before the end of the 2023/24 tax year - and before several tax-free investment allowances are slashed on 6 April.
At midnight on 5 April 2024, the current tax year will finish and the new 2024/25 tax year will begin.
Several generous allowances will disappear overnight, so it makes sense to act quickly and claim any tax breaks you’re entitled to.
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It’s even more important this year to take action, as the 2024/25 tax year will usher in a less favourable tax regime for investors.
For example, from 6 April, the annual dividend allowance and capital gains tax (CGT) exemption will be cut for the second year in a row. The dividend tax allowance will be halved from £1,000 to £500, while the CGT allowance will be slashed from £6,000 to £3,000.
Parents and grandparents wishing to gift money in a tax-efficient way should also take note of the 5 April end-of-tax year deadline: check out our 4 tax tips for the Bank of Mum and Dad.
“The tax year end is looming but there is still time to protect your investments from the taxman’s impending wealth tax raid,” comments Laura Suter, head of personal finance at the investment platform AJ Bell.
“You can stuff money into your ISA and/or pension, move your assets to your spouse and maximise this year’s allowances before the deadline hits.”
Here’s our checklist to ensure you don’t miss out on any tax breaks or free cash before the next tax year starts.
1. Use your ISA allowance
The £20,000 ISA limit is often referred to as “use it or lose it”. This means you can pay in a maximum of £20,000 across all your ISAs (bar the junior ISA, which has a separate £9,000 limit) each tax year, but you can’t roll over any unused allowances into the next tax year.
The £20,000 allowance applies to cash ISAs, stocks and shares ISAs, lifetime ISAs and innovative finance ISAs.
Putting your money into an ISA means you won’t pay a penny in income tax, dividend tax or CGT on any interest, income or profits that you receive. So, it’s worth moving any investments into a stocks and shares ISA, and savings into a cash ISA to shelter it from the taxman.
If you want to open a stocks and shares ISA but aren’t sure where to invest the money, you can always “park” it in a cash fund and decide later.
2. Do a “bed and ISA”
You may not have had to worry about paying tax on investments held outside an ISA in the past, as the CGT and dividend tax-free allowances have more than covered any income or profits.
However, both of these allowances will shrink come 6 April, and you could be faced with an unexpected tax bill.
The tax-free dividend allowance will drop from £1,000 to £500.
HMRC estimates more than 1.1 million more people will be brought into paying dividend tax as a result.
According to the investment platform AJ Bell, the FTSE 100 is forecast to yield 4.2% this year, meaning an investor only needs £12,000 in their investment pot before they hit the tax-free limit.
Meanwhile, the CGT tax-free allowance will be halved, falling to £3,000.
Shifting investments into an ISA via a process known as a bed and ISA transfer protects future gains and dividends from the clutches of tax.
It involves selling and buying back shares, which could trigger a capital gains tax liability – so it’s important to make use of the larger allowance available this tax year.
3. Transfer money to your spouse
Any investments transferred to your spouse or civil partner are exempt from capital gains tax - so as long as your spouse hasn’t used up their tax-free allowance this year and has some ISA allowance remaining, you can make the most of those tax breaks.
Keep a note of the original cost of the asset, as that’s what will be used when your partner comes to sell it.
The same goes for income-producing investments: your spouse will also benefit from a £500 tax-free dividend allowance from 6 April, so you can move investments to them to maximise that tax break.
There’s a possible double benefit, too. If your spouse is in a lower income tax bracket, they will pay either dividend or capital gains tax at a lower rate.
And even if they have used up their allowances, there could still be a benefit to shifting the assets to them, allowing you to benefit from the different tax rules.
4. Get free cash with a Lifetime ISA
Making the most of a lifetime ISA can be one of the most efficient ways of maximising allowances and bonuses. They can be opened by those aged under 40, and by contributing up to £4,000 each tax year, savers receive a 25% bonus from the government - worth £1,000 per year.
This money can either be put towards a first home, as long as the property costs £450,000 or less, or for a pension that can be accessed when you turn 60.
5. Claim the marriage allowance
The marriage allowance applies to couples where one partner does not pay income tax - or their income is below the £12,570 personal allowance - and the other partner pays basic-rate income tax. It could save you up to £252 a year in tax savings.
More than 2.1 million couples currently benefit from the tax break, which allows husbands, wives and civil partners to transfer part of their tax-free personal allowance to their higher-earning partner.
However, HMRC estimates that more than 2 million couples could be missing out on the savings.
In addition to this year’s allowance, couples can backdate their claim by up to four tax years, meaning they could receive an extra lump sum worth up to £1,004 for those years. But you'll need to be quick and apply for the allowance by 5 April.
The non-taxpayer should apply on the HMRC website to access the allowance. If there's a problem doing the online application, you can apply via self-assessment or by writing to HMRC. You can also call 0300 200 3300 for help.
6. Maximise your pensions
You can pay up to £60,000 into your pensions this tax year and receive tax relief. You can also use carry-forward rules to make large contributions, so before the end of 2023/24 savers can pay in £60,000 as well as up to £40,000 from the last three years (depending on whether they made pension contributions in previous years), giving a potential total of £180,000.
This may be particularly lucrative for small business owners with large cash profits.
If you're a higher-rate or additional-rate taxpayer, don't forget to claim the full amount of pensions tax relief, as you could get an extra 20% or 25% in relief respectively.
The taxman has kept hold of £1.3 billion in unclaimed pension tax relief over the past five years, so it could pay handsomely to check if you can benefit.
As well as being a tax-efficient way to save for retirement, you can also use your pension contributions to reduce your income tax band.
When you contribute to your pension pot, the gross value of the contribution has the effect of extending your basic-rate tax band. This means the rates of capital gains and dividend tax you pay could be lower if it means you are no longer a higher-rate taxpayer.
CGT on assets excluding residential property is charged at 10% for basic-rate taxpayers, and 20% for higher or additional-rate taxpayers.
Meanwhile, dividend tax is 8.75% for basic-rate taxpayers, rising to 33.75% for higher-rate payers and 39.35% for additional-rate payers.
If you’ve only just tipped over into the next tax band, a small pension contribution could bring you under the threshold, leading to a significant saving.
7. Reduce your inheritance tax liability
Several inheritance tax breaks can help you reduce your overall tax liability.
The most well-known is the ‘annual exemption’, allowing you to make a £3,000 gift. Crucially, this allowance can be carried forward – so, you can make a £6,000 gift should you have the allowance remaining from last year.
As a couple, each person gets the same £3,000 allowance, potentially doubling the IHT reduction you can make.
You are allowed to make gifts of up to £250 to as many people as you like, so long as you haven’t made any larger gift to that person.
8. Help your kids with an ISA or pension
On top of your pension contribution allowances, money can be put aside into someone else’s savings, including your children's. The benefit of this is children are still entitled to tax relief on the contribution, even if they are non-taxpayers.
Investing £3,600 a year, the maximum allowed, on behalf of a child will cost you only £2,880. A top-up of £720 from the taxman is added to your contribution.
While starting a pension for a child may seem odd, it is a popular route for maximising tax savings. In 2019, 60,000 families opened pension plans for kids, according to HMRC.
Likewise, a junior ISA can act in much the same way. Parents, relatives and friends can contribute a total of £9,000 into the account each tax year, and any investment gains are tax-free.
Like adult ISAs, there are two types of junior ISA: cash ISAs, and stocks and shares ISAs. If you're considering a stocks and shares junior account but are overwhelmed by the choice, take a look at our guide to selecting which junior ISA is best suited to you.
9. Check your tax code
If your tax code is wrong, you could be paying thousands of pounds of extra tax to the taxman. So, it's important to check your tax code.
The code is normally a mix of letters and numbers; the most common tax code is 1257L.
Our guide to tax codes can help you determine if you're on the right one.
If you notice you're on the wrong tax code, you can claim back any overpaid tax for the last four tax years.
But it's your responsibility to check and let HMRC know if it's wrong.
Sometimes people are on the wrong tax code if they change their job or their salary goes up or down.
If you think you have overpaid tax through PAYE in the current tax year, you should tell HMRC before the end of the tax year. There's more information on gov.uk about how to claim a tax refund.
10. Check your child benefit
Child benefit is paid to parents to help with the costs of childcare.
From 6 April, the rate for your eldest or only child will go up to £25.60 a week - around £1,331 a year - while the rate for other children will rise to £16.95 a week.
But parents must watch out for the high income child benefit charge, as they currently lose the payments when they earn over £60,000.
Anyone earning between £50,000 and £60,000 has to pay back a portion of the money in the form of extra income tax.
The good news is that the chancellor announced in his Spring Budget that the income threshold will be raised from £50,000 to £60,000 from 6 April, meaning parents who earn less than £60,000 can keep all of their child benefit.
The top of the taper at which the benefit is withdrawn completely will increase from £60,000 to £80,000.
If you earn slightly above £60,000 - or just above £80,000 - you may be able to reduce your taxable income and keep more of your child benefit.
For instance, putting money into a workplace pension or using employer salary sacrifice schemes can lower your taxable income without losing money.
Salary sacrifice is an agreement to reduce an employee's cash pay for non-cash benefits, like childcare vouchers or a cycle-to-work scheme.
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