Making the most of your tax allowances and exemptions can help you to get more from your money and provide a useful boost to your wealth.
On 6 April 2023, many allowances will reset for another tax year. As many tax breaks can’t be carried forward into the new tax year, now is your last chance to use some of them.
Our useful guide to seven key allowances you should make the most of before 5 April 2023 is available now. Download your copy here, or read on for a summary of the allowances and exemptions you could take advantage of over the next few weeks.
1. Marriage Allowance
If you’re married or in a civil partnership, the Marriage Allowance allows you to give some of your unused Personal Allowance – the amount of income you can receive before Income Tax is due – to your partner.
This measure can reduce their tax bill for the 2022/23 tax year by £252.
2. ISA allowance
The interest or returns you earn on money held in an ISA are free of both Income and Capital Gains Tax (CGT). For the current tax year, you can add up to £20,000 to an ISA.
You can spread your annual allowance across several different ISA types, such as Cash and Stocks and Shares ISAs.
You can’t carry forward any unused ISA allowance so if you don’t maximise your tax-efficient savings before 5 April, you’ll lose this.
3. Dividend Allowance
The Dividend Allowance means you can receive up to £2,000 in dividends without incurring tax. So, if you receive dividends from investments, or you’re a company director and you draw dividends from your business, you can take £2,000 in dividends from the business without paying any Dividend Tax.
The Dividend Allowance will reduce to £1,000 in the 2023/24 tax year, so it could be prudent to use the higher allowance before 5 April.
4. Capital Gains Tax annual exempt amount
You pay Capital Gains Tax (CGT) when you sell certain assets and make a profit. This may include stocks that aren’t held in an ISA, a second property, or personal possessions worth more than £6,000 (excluding your car).
For the 2022/23 tax year, the CGT exempt amount means an individual can normally make profits up to £12,300 before CGT is due. So, crystallising a gain up to this amount could be a prudent step.
You can’t carry forward the exemption so it’s important to use it before 5 April, particularly as the CGT annual exempt amount will reduce to £6,000 in the 2023/24 tax year.
5. The pension Annual Allowance
The pension Annual Allowance is the maximum that you can pay into your pension each tax year while still benefiting from tax relief. This includes pension contributions made by your employer or other third parties. Using your full Annual Allowance can help you to maximise your tax-efficient retirement savings.
In the 2022/23 tax year, the Annual Allowance is 100% of your annual earnings, up to £40,000, for most people.
Any unused pension Annual Allowance can be carried forward for up to three tax years. You have until 5 April 2023 to make full use of your allowance from the 2019/20 tax year.
6. The Inheritance Tax annual exemption
Each year, your Inheritance Tax (IHT) annual exemption means you can gift a sum which will usually immediately fall outside your estate for IHT purposes.
In 2022/23, this amount is £3,000. The limit applies to an individual, so couples can gift up to £6,000 between them. The exemption can be carried forward for one year.
7. Gifts from your income
If you are worried about IHT, making gifts from your income is another way to reduce a potential bill. However, these gifts need to be made regularly and must:
- Be made from your income
- Be part of your normal expenditure
- Leave you with sufficient income to maintain your current lifestyle.
This can be a useful way to offer financial support to loved ones. For example, you might pay the school fees of grandchildren or make regular deposits to pay for the living costs of your children.
If you want to take advantage of this, it’s important to make sure your regular gifts have continued throughout the current tax year. You should also keep a careful record of gifts made under this exemption.
Get in touch
Download our useful guide to find out more about each of the allowances and exemptions above.
Or, if you’d like to ensure you make the most of these tax breaks before 5 April, get in touch.
Please email us at firstname.lastname@example.org or call 020 3828 8100 today.
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 Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
The value of your investment 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.
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.