It is always important to check that your personal affairs, family and business affairs and your long-term financial plans are arranged as tax efficiently as possible, and the tax year end is the best time do this.

As the financial year comes to an end, it’s crucial to stay informed about changes in the tax landscape that might impact your financial planning. This year, this may be even more beneficial than usual given the significant changes regarding pensions.

We have summarised key changes that you need to be aware of below:

Pension Contributions

  • Pension contributions are arguably the most effective way to save for retirement – remember, you receive tax relief on personal contributions and employer contributions can result in corporation tax savings.
  • April 2023 saw a change of the annual allowance from £40,000 to £60,000 which can be carried forward by 3 years.
  • The Money Purchase Annual Allowance (MPAA) increased from £4,000 to £10,000 in April 2023, however this allowance, once triggered, cannot be carried forward, so make sure you utilise it if applicable each tax year.
  • Higher and additional rate taxpayers can also use pension contributions to reduce their effective earnings and bring them into a lower tax band.

ISA Contributions Before Tax Year End

  • Consider making contributions before the tax year ends:
  • Everyone has an Individual Savings Account (ISA) allowance of £20,000, meaning the maximum you can save into a cash ISA, a stocks and shares ISA (or both) is £20,000 in any given tax year.
  • Gains and income within ISAs are free from any Income Tax or Capital Gains Tax.
  • Use it or Lose it – you can’t carry this allowance into the next tax year. If you are in a position to invest money before the end of the tax year, maximising your ISA allowance is a tax efficient way to save for your future.

Income Tax Bands

  • The rates have stayed the same for this year with the Basic rate at 20%, higher rate at 40%, and additional rate at 45%, however the additional tax rate band had undergone a shift in 2023/24 and now starts from £125,140 (down from £150,000). This remains frozen for this tax year.
  • There are several ways that you can reduce your income level so that it falls below the new tax band, such as: making pension contributions and using salary sacrifice (if your employer allows this).
  • If you are a higher risk investor, you could consider investing into schemes such as EIS, VCT or SEIS schemes which could decrease your total tax liability by 30% (SEIS is 50%) of the investment value. As with all investments there is risk and you could get back less than what you put in so it’s vital you consult your Financial Adviser before investing into these schemes.

Dividend Rate Changes and Allowance Adjustments

  • The previous tax year saw the annual dividend allowance fall from £2,000 to £1,000.
  • This is being halved again and the new annual dividend free allowance is now £500.
  • The dividend rates have been fixed at 8.75% Basic Rate, 33.75% Higher rate and 39.35% for additional rate taxpayers.

Capital Gains Tax (CGT) Allowance Halving

  • In 2023/24, the CGT allowance was cut from £12,300 per annum, to £6,000 per annum.
  • This will be halved again to £3,000, effective from 6th April 2024.
  • As it will be halved, it is vital to make use of the £6,000 allowance before the tax year ends as it could result in a larger tax bill if the gain is realised in the new tax year.

Abolishment of Lifetime Allowance

  • With the abolishment of the Lifetime Allowance (LTA), the government is introducing two new allowances – the Individual’s Lump Sum Allowance (ILSA) and the Individual’s Lum Sum and Death Benefit Allowance (ILSDBA). These are effectively the limit on how much tax-free cash individuals can take in life and death.
  • Standard Tax-Free cash allowance (ILSA) will match current levels (£268,275).
  • The standard allowance beneficiaries can receive tax-free (ILSDBA) is £1,073,100. The allowance is modified by different forms of protection.
  • Pensions in excess of the ILSDBA will be subject to tax on the dependents marginal rate of income tax.

Deadline for Fixed & Individual Protection 2016

  • The deadline for Fixed & Individual Protection 2016 is April 5, 2025. Please check with your Financial Adviser if Fixed or Individual Protection 2016 is applicable to you.
  • If you already have protection, you may be entitled to a larger sum of tax-free cash, however you should check this with your Financial Adviser.

Keeping track of these changes and aligning your financial decisions accordingly can make a significant impact on your overall financial position. Stay informed, plan ahead, and consult with your Financial Adviser to ensure you make the most of these adjustments.