The end of the tax year is fast approaching with April 5 just weeks away.
Many people will be awaiting the opportunity to renew their ISAs to manage their tax bill, but others will be prioritising making the use of key tax allowances.
Many of these allowances cannot be carried forward into the new tax year, and nearly a quarter of UK adults have never checked whether they’re taking “full advantage” of what is on offer, according to wealth manager St James’s Place.
Claire Trott, head of advice at St James’s Place, said: “Taking the time to review your finances now can have a meaningful impact on your financial plans in the long term, helping to ensure you’re making the most of these opportunities.
“Tax decisions can sometimes feel complex, particularly for those with more complicated financial arrangements, but being proactive can make a real difference. Speaking to a financial adviser, if you are in the position to do so, can help provide clarity and ensure you’re in the best position possible.”
Here’s four key allowances to consider in the lead up to the end of the tax year.
Pension contributions
For a considerable number of Brits, pension contributions remain the most tax-efficient way to save for the long term.
Pensions provide tax relief on contributions, meaning when allocating money into a pension the tax you’d normally pay is added instead.
Most people can contribute up to £60,000 per tax year, and receive relief at the highest marginal rate, giving their savings a considerable boost.
Trott said: “For higher earners, the annual allowance may be tapered to as low as £10,000, although in some cases unused allowances from the previous three tax years can be carried forward.
“Alongside this upfront tax relief, it’s also worth noting that investments held within a pension can also grow free from UK income and capital gains tax, helping savings build more efficiently over time.”
ISA allowances
ISAs have long been deemed a crucial savings tool, with interest, income and growth able to be exempt from tax.
Brits can save up to £20,000 per tax year across both cash and stocks and shares ISAs, but the allowance cannot be carried forward, with Trott hailing it as “use it or lose it”.
But, from April 2027 onwards the rules change, with only £12,000 allowed to be held tax-free per year in a cash ISA, while stocks and shares remain at £20,000.
Capital gains and gifting
Capital Gains Tax (CGT) is also something to keep in mind, as it is a tax on the profit or gain made while owning an assets, including property, stocks not held in an ISA or digital assets such as crypto.
For this tax year, individuals have an annual exempt amount of £3,000, beyond this basic rate taxpayers pay 18 per cent in CGT, while higher and additional rate taxpayers are required to pay 24 per cent.
Trott said: “The CGT allowance is often underutilised as people are reluctant to sell successful investments. But, for those sitting on long term gains, making use of the exemption when you can, can be a good way to reduce your tax liability down the line.
Spouses and civil partners can also combine their allowances, potentially creating a £6,000 tax-free buffer for jointly held assets, but Trott noted that rules can be complex, so accessing financial advice can allow people to take the “best approach”.
The annual inheritance tax (IHT) gifting exemption also stand at £3,000, allowing people to give away money or possessions without it forming part of your estate.
This allowance can be carried forward a year, meaning if it was unused last year there is the possibility of having £6000 to use.
Additional gifting allowances are also available, such as giving £5,000 to a child or £2,500 to a grandchild as a wedding gift, alongside your annual exemption.
People can also give up to £250 to as many individuals as you like each tax year.
