7 allowances you might want to use before the tax year ends – a valuable guide

When the new tax year begins on 6 April 2024, several important allowances reset.

While certain unused allowances can be carried over to the following year, many can’t. As a result, you could miss out on some potential opportunities to make your money go further if you don’t take full advantage of those allowances.

To help you make the most of these allowances, download a free tax year end guide with lots of useful information about seven allowances you might want to use before the tax year ends.

Here’s a summary of the key points.

1. Marriage Allowance

The Marriage Allowance may let your spouse or civil partner transfer some of their unused Personal Allowance – the amount they can earn before paying Income Tax – to you.

This effectively increases your Personal Allowance, meaning that you could pay less Income Tax.

In the 2023/24 tax year, your Personal Allowance is £12,750 and it’s frozen at this level until April 2028. However, using the Marriage Allowance, your spouse or civil partner may be able to transfer up to £1,260 of their unused Personal Allowance to you. This could potentially save you up to £252 in Income Tax in 2023/24.

2. ISA allowance

An ISA is an excellent tax-efficient vehicle for saving and investing your wealth. You typically don’t pay Dividend Tax or Capital Gains Tax (CGT) on any investments in a Stocks and Shares ISA, and you won’t pay tax on the interest generated from a Cash ISA.

In the 2023/24 tax year, you can contribute up to £20,000 across all your ISAs. Using as much of this allowance as possible before saving and investing elsewhere could help you reduce the tax that you pay.

3. JISA allowance

A Junior ISA (JISA) offers many of the same tax benefits as a standard ISA, and it’s a useful way to set aside wealth for a child or grandchild. The money is held on their behalf until they can access it – typically when they are 18.

In the 2023/24 tax year, you can contribute £9,000 to a JISA for each child.

Starting early and using the full allowance each year could mean that they have a significant sum to spend on financial milestones such as buying their first home or getting married.

4. Dividend Allowance

If you are a business owner or hold shares in a dividend-paying company, you may receive dividends that provide a welcome boost to your income. However, it’s important to consider the tax that you may pay on these funds.

You do not pay tax on dividends that fall within your Personal Allowance of £12,750. Dividends from shares in a Stocks and Shares ISA are also tax-free.

Additionally, you have a Dividend Allowance of £1,000 in 2023/24, which increases the amount you can earn from dividends before paying tax.

Any dividends that exceed this threshold will be taxed according to your marginal rate of Income Tax. You could pay:

• 8.75% if you are a basic-rate taxpayer
• 33.75% if you are a higher-rate taxpayer
• 39.35% if you are an additional-rate taxpayer.

It’s also important to note that the Dividend Allowance is set to fall to £500 on 6 April 2024, so you may need to consider this when generating an income from shares.

5. Capital Gains Tax Annual Exempt Amount

You may pay CGT on any profits you make when selling or disposing of certain assets such as stocks and shares outside an ISA, or a property that isn’t your main home.

In 2023/24, you can earn up to £6,000 in profits from selling or disposing of assets before you pay CGT. This is known as your “Annual Exempt Amount”.

Any profits that exceed your Annual Exempt Amount are taxed according to your marginal rate of Income Tax. You could pay:

• 10% (or 18% on a residential property that isn’t your main home) if you are a basic-rate taxpayer
• 20% (or 28% on a residential property that isn’t your main home) if you are a higher- or additional-rate taxpayer.

Fortunately, by using your full Annual Exempt Amount, you may be able to reduce the CGT that you pay. Additionally, you and your spouse or civil partner each have your own Annual Exempt Amount and you can transfer assets between you without incurring CGT.

By considering how you use both Annual Exempt Amounts and potentially spreading the disposal of assets across multiple tax years, you might be able to mitigate a large CGT bill.

This could be especially important as the CGT Annual Exempt Amount is set to halve to £3,000 on 6 April 2024.

6. Pension Annual Allowance

One of the primary benefits of paying into a pension is that you receive tax relief at your marginal rate of Income Tax on your contributions.

You automatically receive 20% tax relief at source, meaning that a £100 contribution effectively “costs” you £80. If you are a higher- or additional-rate taxpayer, you may also be able to claim more tax relief through self-assessment.

In 2023/24, most people can contribute up to £60,000 – including your contributions, employer contributions, and tax relief – without an additional tax charge. You can also carry over your unused Annual Allowance for up to three years.

As such, it may be beneficial to use as much of your Annual Allowance as possible before the end of the tax year.

7. Inheritance Tax annual exemption

If you are concerned about the Inheritance Tax (IHT) that your family may pay on your estate when you die, lifetime gifting could be beneficial.

Passing wealth to your loved ones now could potentially reduce the size of your estate for IHT purposes.

Luckily, you have a £3,000 IHT annual exemption for gifting in 2023/24. Any gifts within this threshold immediately fall outside your estate for IHT purposes.

You can also carry your annual exemption over for one year, meaning you can potentially gift up to £6,000 in a single tax year without triggering an IHT charge. Your spouse or civil partner has their own IHT annual exemption too.

Using your full annual exemption each tax year could reduce the IHT that your family eventually pays on your estate.

Be prepared for the end of the tax year on 5 April 2024

Taking full advantage of all the allowances available to you could help you reduce the tax that you pay and maximise your wealth.

Download our useful guide on seven allowances you may want to use before the end of the tax year to help you prepare ahead of 6 April 2024.

Get in touch

If you need more guidance on any of the allowances you read about in our guide, we are here to help.

Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.