Lowes Magazine Issue 125

TAX

WITH APRIL 5, THE END OF THE TAX YEAR APPROACHING it can pay to ensure you are making full use of this tax year’s allowances and exemptions, as they could provide significant rewards in the longer term. This is especially so as some have a ‘use it or lose it’ status. 1. ISAs The annual ISA allowance is one such tax benefit which is lost if not used. Each tax year you can save up to £20,000 into an ISA which grows free of income tax and CGT liabilities. There are various ISA types, with their own limits. These are: Cash or Stocks and Shares £20,000 5 considerations for the tax year end

3. CGT exemption Currently, the CGT exemption is £12,300 for individuals, although this is reducing to £6,000 from April 2023, and then down to £3,000 from April 2024. This can be a useful tool to top up income in retirement if a person’s income level threatens to breach the next tax rate band. Growth investments typically incur CGT but only if the gains take an individual over their current tax exemption amount for the year. 4. Venture capital trusts (VCTs) VCTs are an efficient tax solution and can be useful for anyone who has maxed out their other tax reliefs or is close to breaching their pension lifetime allowance. They allow investors to claim upfront tax-relief worth 30% of the amount invested, up to an investment of £200,000, and earn tax-free dividends and capital gains. VCTs focus on early-stage growth companies and can offer entrepreneurs and small businesses much-needed support. However, as such they should be considered higher risk investments. 5. Changes to tax rates From April 2023 the dividend allowance is reducing from £2,000 to £1,000, with a further reduction to £500 from April 2024. Also, the annual exempt amount for CGT is reducing as mentioned above. Anyone receiving dividends above the changing amounts, should consider making the most of the current allowance and exemptions and seeking advice for future years. Likewise, for investments which will incur CGT charges. An option available to transfer from non-ISA investments into a tax-efficient ISA, where no income tax or CGT is paid, is called ‘bed and ISA’. This enables non-tax free assets to be sold and used to top up or open a new ISA account. However, CGT may need to be paid if the gains on the sale of the investment exceed the CGT limit. It is worth pointing out that the tax tail should not be allowed to wag the investment dog – in other words, the main focus of financial planning should be to find the most appropriate investments and then ensuring those investments are held within tax efficient wrappers.

Junior ISA

£9,000 a year

Help to Buy ISA

£200 a month (for existing accounts only – as this ISA is no longer available)

Lifetime ISA

£4,000 a year

Flexible ISAs allow funds to be withdrawn from an ISA as long as the funds are replenished in the same tax year as the withdrawal was made. 2. Pensions Saving into a pension can be one of the best ways to save for retirement, as income tax relief is received on personal pension contributions. Under current rules, up to £40,000 can be saved into a pension per tax year, or 100% of your salary – whichever is lower. For higher earners with an income of over £100,000 a year, the annual pension allowance will gradually reduce, down to as low as £4,000. This is known as the tapered annual allowance. If not made in the current tax year, pension payments may be carried forward for up to three years. As pension planning can be a complex area, speaking to an Independent Financial Adviser can be beneficial in making the most of retirement savings and the tax reliefs available.

10 Lowes.co.uk