As tax year end (5 April) approaches, there is still chance to make the most of valuable allowances to help you reduce your tax bill and ensure your finances are managed in the most tax efficient way.
Tax year end allows you to save or invest up to the annual allowance in a given tax year and there are tax benefits for doing so. ISAs and pensions are the bedrock of retirement planning, and since they can help shelter you from tax on profits, making the most of these can help make your money go further.
Why is it important to make tax part of your financial plan?
Whether we like it or not, tax effects every aspect of our finances, and using them to your advantage will ensure that you are not paying more tax than is necessary and help your money work harder for you.
When is tax year end 2023?
The tax year end in the UK can run differently to other time zones across the world. The 2022/23 tax year runs from 6 April 2022 to 5 April 2023. This means you have until midnight on 5 April 2023 to make the most of your annual allowances.
What is the annual allowance for ISAs?
The annual allowance for ISAs in this tax year is £20,000.
This means you can invest £20,000 for that tax year in stocks and shares ISA without paying tax on the growth of those contributions. If you don’t use your annual ISA allowance before the end of the tax year you lose it forever.
An ISA is a great way of making your money work harder for you because everything you earn from it is free from income tax and capital gains, making it extremely tax efficient. ISAs also have the potential to beat inflation over time, particularly if you are investing in the longer term (5-10 years).
What is the annual allowance for pensions?
The annual allowance you can contribute towards your pension is 100% of your salary or £40,000 – whichever is the lower. You can also carry forward any unused allowance from the last three years.
Unlike an ISA, you can still contribute as much as you want beyond the pension allowance, but you’ll be eligible to pay tax on any amount over the contribution limit. This is called an ‘annual allowance charge’, and it will be added to the rest of your taxable income for the year when your tax liability is calculated.
By making regular contributions to your pension each month and topping up what you can before tax year end, you’ll benefit from compound interest over the long term, which could add a significant amount to your retirement fund.
Remember that the maximum total amount you can hold within all your pension savings without having to pay extra tax when you withdraw money from them is currently £1,073,100.
What happens if I miss the end of the tax year deadline?
If you miss the deadline, your tax allowances will be reset, and any unused allowance can’t be used in the new year. That’s why it’s important to prepare for the deadline and speak with your Financial Advisor as soon as possible so they can help you make the most of your available tax reliefs and allowances before 5 April.
Contact us on 01332 497670 to find out more.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.