As the end of the tax year approaches, it’s important for savers to take advantage of the various tax-saving opportunities that are available to them. Here are some steps that British savers should consider before the end of the tax year.
1. Use Your ISA Allowance
If you haven’t already done so, make sure you use up your ISA allowance before the end of the tax year. The current ISA allowance is £20,000 for the 2022/23 tax year. By investing in an ISA, you can earn tax-free interest on your savings and investments.
2. Save for your Children
If you have children or grandchildren, the Junior Individual Savings Account (JISA) is worthy of consideration. Contributions are limited to £9,000 per tax year, but it has the same tax benefits as an adult ISA.
You can pay into a JISA on behalf of your child up to age 18, but your child can take control of the account at 16. No withdrawals are allowed before 18, however. Again, if you don’t use the full JISA allowance in the tax year, the remainder does not roll over and will be lost. The better JISA providers will allow multiple contributors, so it’s a great way for grandparents to help out.
3. Consider a Pension Contribution
Check your pension plan, can you make a contribution before the end of the tax year? If you can, you could benefit from tax relief on your contributions. You can receive tax relief on contributions up to your annual allowance, which is the lower of £40,000 or 100% of your earnings in the 2022/23 tax year.
Also, see last month’s blog post about maintaining pension contributions.
4. Claim Tax Relief on Charitable Donations
If you have made a charitable donation during the tax year, you may be eligible to claim tax relief on your donation. This means you can reduce your tax bill by the amount of your donation.
5. Check Your Capital Gains Tax (CGT) Liability
If you have made a capital gain during the tax year, you may need to pay CGT on the gain. However, you can use your annual CGT allowance to reduce your liability. For the 2022/23 tax year, the CGT allowance is £12,300.
6. Review Your Savings and Investments
Take the time to review your savings and investments to ensure they are performing as you expect. If you have investments that have performed well, you may want to consider taking some profits before the end of the tax year.
7. Take Advantage of your Dividend Allowance
Check you’re making the most of the benefits available on your dividends before 5 April 2023. The Dividend Allowance lets investors and shareholders receive £2,000 of dividends free of Income Tax. Originally introduced in 2016, the limit has been reduced from £5,000 to its current level, it’ll halve for the tax year 2023/24, and again the year after. So, it would be wise to make use of the allowance while it’s available. For the latest information, see HMRC.
Tax due on dividends above the Dividend Allowance is then;
- 7.5% for basic rate tax-payers
- 32.5% for higher rate tax-payers
- 38.1% for additional rate
If you can take dividend income, from either a business you are involved in or your investment portfolio, this allowance can help you create a more tax-efficient income.
In conclusion, by taking these steps before the end of the tax year, UK savers can make the most of the various tax-saving opportunities available to them. It’s important to take the time to review your finances and make informed decisions that will benefit your long-term financial goals. If in doubt, get in touch for a review with me.