The current tax year runs until 5 April and since many allowances are annual, it is imperative that you utilise your allowances and exemptions to the max each year. When you take advantage of all the tax relief available to you it can reduce your tax liability and help your money stretch further. At times like these, every little bit of saving will help, and reviewing your finances now could make all the difference if you still have ways to save. Here are just a few allowances to consider using before the tax year ends.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
The Marriage Allowance allows a spouse or civil partner to give some of their unused Personal Allowance to their partner. As of the 2022/23 tax year, the Marriage Allowance is £1,260. For the 2023/24 tax year, the Personal Allowance is £12,570. So, if you or your partner has an income below this, whoever has the lower income can transfer up to £1,260 of their Personal Allowance to their partner. This effectively increases the Personal Allowance of their partner to £13,830, which could then reduce their tax bill for the 2023/24 tax year by £252. You can backdate the Marriage Allowance for up to four years.
The virtues of Individual Savings Accounts cannot be extolled enough. They’re a fantastic, tax-efficient way to save money. For the current tax year, you can add up to £20,000 to an ISA, spread across several different ISA types. Choose from a Cash ISA, a Stocks and Shares ISA, a Lifetime ISA, an Innovative Finance ISA, and a Help to Buy ISA. Don’t forget about Junior ISAs, which has an annual limit of £9,000 for the 2023/24 tax year. Once your child turns 16, they can start to manage their own account, but won’t be able to withdraw until they turn 18.
If you hold shares in a dividend-paying company, you will get paid dividends as a share of the profits they have made. How much you receive will depend on performance and stock price. Business owners may also choose to receive dividends as a way to supplement their salary and maximise the tax-efficiency of their income. The Dividend Allowance means every individual can receive up to £1,000 in dividends without incurring tax each year. How much tax you pay on dividends is dependent on your income tax band.
Capital Gains Tax (CGT) Annual Exempt Amount
When you sell certain assets and make a profit, you are required to pay Capital Gains Tax. For the 2023/24 tax year, you will be able to make gains of up to £6,000 before CGT is due. If you want to reduce your CGT liability, you could spread out the disposal of your assets over the years. Or you could plan with your partner to fully utilise your annual exempt amounts. In the 2024/45 tax year, the CGT annual exempt amount will fall from £6,000 to £3,000 so keep that in mind when planning asset disposal.
Pension Annual Allowance
The Pension Annual Allowance is the maximum amount of money that you can contribute to your pension each tax year while still benefiting from tax relief, including any contributions from your employer or any other third party. Generally speaking, in the 2023/24 tax year, your Annual Allowance is 100% of your annual earnings, up to £60,000.
For many people, this won’t actually be the case though because of one of the Tapered Annual Allowance. The Tapered Annual Allowance means if your threshold income is over £200,000 and your adjusted income is more than £260,000, your Annual Allowance will be reduced by £1 for every £2 your income exceeds these thresholds. Your allowance could be reduced to as low as £10,000.
For even more allowances to take advantage of and more information about tax planning, check out our guide.
Seek help to maximise your allowances
Tax planning is a vital part of financial planning for doctors and dentists, especially if you are a high earner or have amassed some wealth. Ensuring you are using every tax advantage each year to allow you to save as much money as possible is crucial. Contact your trusted Dental & Medical Financial Services adviser to get started.