5 ways to save tax before the 5th April
Make the most of the tax-saving allowances in this current tax year. Here are the top 5 ways to save tax before the 5th April.
You may think only an accountant deals with tax, in fact, a financial adviser can delve into your finances and advise you on how to make the most of your tax allowances through careful financial planning. Leave the tax efficient strategies and hassle to an expert so you can enjoy a financial advantage.
Tip 1 – Use your ISA allowances
ISAs are one of the most tax-efficient ways to save. According to government statistics, around 12 million adult ISAs were subscribed to during the 2020/21 tax year. The cash value of ISAs stood at around £687 billion.
You can invest up to £20,000 into ISAs this tax year 2022-23. You have until 5th April 2023 to make the most of your ISA allowance for the current tax year.
You cannot carry any unused ISA allowance into a new tax year. So, if you don’t use it before the 5th April 2023 deadline, you’ll lose it.
You may want to review your saving or investment plan now to help you get the most out of your ISA allowance. Speak to an adviser to find out more about how we can help.
Tip 2 – Use your pension annual allowance
Investing in a pension is also one of the 5 ways to save tax before the 5th April.
If you are a UK resident under age 75 you can contribute as much as you earn to pensions this tax year and receive tax relief.
The pension annual allowance in tax year 2022/23 is £40,000. The annual allowance can be lower for higher earners and some people who have drawn money from their pension.
Saving into a pension can also help you to avoid a potential 60% tax bill. If your total income is £100,000 or more, your tax-free personal allowance (£12,570) is reduced by £1 for every £2 over the threshold.
Be aware, the personal allowance disappears entirely if you’re earning £125,140 or more.
By making the most of pension contributions you can reduce your taxable income, effectively reinstating some or all of your personal allowance if you bring it below £125,140.
Those with “adjusted income” of £240,000 or more could see their pension contribution allowance tapered. So making the most of other tax wrappers, like ISAs, can help when it comes to your savings.
Remember, money in a pension cannot normally be accessed until age 55 (57 from 2028).
It can be difficult to understand which option is for you. if you are just starting to save into a pension or nearing retirement and would like to discuss your options please get in touch.
Tip 3 – Use Carry Forward
If you have unused annual pension allowance from the past three tax years, you might be able to use it this year. Carry Forward can effectively increase this year’s allowance. Any personal contributions are still capped by your earnings.
This year, the annual pension allowance is £40,000. If you haven’t added money into a workplace or personal pension over the last three years you could make up to a £160,000 contribution this tax year. You could even get up to a 45% tax relief boost from the government.
Exceeding the annual allowance could result in an unexpected tax bill. So, if you’re thinking about boosting your pension before the end of the tax year, you should review the contributions you’ve already made and your allowance.
Keep in mind that, even if you’ve started to take money out of your pension, you can still contribute. However, your annual allowance might be reduced to £4,000. This is called the Money Purchase Annual Allowance.
If you are not sure if adding to your pension is right for you, please contact us. We can advise you based on your personal financial circumstances and ensure you make an informed, confident decision about your pension savings.
Tip 4 – Pay into a pension for your partner
Investing into a pension for your non-earning partner.
Non-earners under 75 that are UK residents can make a pension contribution of up to £2,880 and the government will add up to £720 in basic rate tax relief.
From age 55 (57 in 2028), up to 25% of the value of the pension fund can normally be taken as tax-free cash, with the remaining balance being taxable.
However, if further withdrawals fall within the individual’s personal allowance each year, these will also be tax free.
Tip 5 – Transfer your assets
If your spouse pays less tax than you, or no tax at all, then you could be losing out on valuable allowances each year.
This includes:
- Personal allowance
- Personal savings allowance
- Dividend allowance
- Capital gains tax allowance
that aren’t being fully used.
You can transfer assets to a spouse free of capital gains tax. Keep in mind if they decide to sell it, they might have to pay capital gains tax on it. However, they’ll still be able to use their allowance of £12,300 if they haven’t already used it.
If your spouse isn’t earning an income and you are a basic rate taxpayer, they can transfer £1,260 of their personal allowance over to you, helping reduce your tax liability by up to £252 in the current tax year.
Talk to us about saving tax before the 5th April
If you would like to speak to an expert about tax planning and optimising your tax by making the most of your allowances, please get in touch. Our team can help you to achieve peace of mind for your financial plans.
Call our team today to arrange a free initial consultation. There is no obligation to work with us after your first meeting. It’s a great way to gauge if financial planning is right for you. Call 01244 347 583 to speak to our team or complete the form below and we’ll come straight back to you.
Saving tax before the 5th April – This blog is for general information only and does not constitute personal advice. The information is aimed at retail clients only.
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Remember tax charges and their benefits can change and will depend on your individual circumstances.
Source: Hargreaves Lansdown, Gov.uk
