Richard Macmillan
As the 2024 draws to a close, you could have the perfect opportunity to maximise your annual allowances, and enhance your financial wellbeing ahead of the New Year.
Making sure your finances are optimised and strategically planning ahead over the festive period can yield substantial tax savings.
With this in mind, understanding the options you have available to you is crucial. Here, Richard Macmillan explores different ways in which you can optimise allowances and avoid pitfalls.
ISAs are one of the most efficient ways in which you can handle your investments. As it stands the ISA allowances is £20,000 for 2024/25 tax year. And you can spread this across everything from cash and investment to innovative finance and lifetime ISAs.
ISAs offer flexibility and ensure that if you make a gain from your investment with your ISA, that gain will be free from income tax, tax on dividends or capital gains tax (CGT). With recent changes to CGT having been announced in the Budget, the latter could be absolutely invaluable.
It is important to note that investing outside of an ISA doesn’t automatically incur tax. If your dividends don’t surpass the dividend allowance and any interest for cash, fund or bonds stay within the personal savings allowance.
Topping up existing ISAs can be practical step to ensure every part of the allowance is used. The annual ISA limit operates on a use-it-or-lose-it basis, meaning previous years’ unused allowances cannot be reclaimed. Making the most of current opportunities is, therefore, essential.
As ever, in order to maximise these benefits, strategic planning is key.
Currently, the Capital Gains Tax allowance stands at £3,000. Meaning you can sell shares, property and other assets without incurring a CGT charge, on the first £3,000 of gains. If you’re looking to sell any assets with substantial gains, being able to strategically utilise the CGT allowance over multiple tax years can help to minimise your liability.
As previously mentioned, the Autumn Budget confirmed that CGT changes will be coming into play. The lower CGT rate will rise from 10% to 18%, while the higher rate will increase from 20% to 24%. This change means you might face higher taxes on profits from selling assets like shares. Previously, those with gains above the threshold had to pay 20% on profits from assets such as shares, or 24% from selling additional property. Rates on residential property will remain at 18% and 24%, respectively.
It’s important to note that CGT does not apply to assets within pensions and ISAs, or on your primary residence. Being aware of these exceptions can help you make informed decisions about asset sales and investments.
As the New Year approaches, so does the tax year end. Boosting your pension contributions ahead of year end can be a really effective way to secure your financial stability.
Some employers may offer to match your contributions up to a certain threshold. This is a great opportunity for employees to enhance saves. Tax relief on pension contributions is also available, depending on which tax bracket you fall into.
For basic rate taxpayers, every £800 contributed is topped up to £1,000 by HMRC. Higher and additional rate taxpayers can claim even more through their tax return, making pensions a lucrative option for tax efficiency. With a maximum of £60,000 eligible for tax relief per year, understanding these limits can help plan contributions effectively.
If you have accessed more than your tax-free lump sum from a pension, the amount you can contribute might be reduced, with the Money Purchase Annual Allowance (MPAA) coming into effect.
Again, this only further emphasises the importance of planning when accessing pension funds to avoid unexpected contribution limits.
The New Year could bring potential changes in tax rules with it. So, staying informed is vital.
Your personal circumstances could be impacted due to any changes to these regulations, with that in mind professional advice can really help to secure your financial health.
For further information or personalised guidance on maximising your allowances before the tax year ends, please do not hesitate to contact us.
THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.
