With the tax year drawing to a close on April 5, individuals are increasingly focused on maximizing key tax allowances. Many opportunities to reduce tax liability are available, but a recent report indicates a significant portion of UK adults aren’t fully leveraging them. According to wealth manager St James’s Place, nearly a quarter of UK adults haven’t checked if they are taking “full advantage” of available allowances.
Claire Trott, head of advice at St James’s Place, emphasized the importance of proactive financial review, stating, “Taking the time to review your finances now can have a meaningful impact on your financial plans in the long term, helping to ensure you’re making the most of these opportunities.” She added that seeking financial advice can provide clarity, particularly for those with complex financial situations.
Here’s a gaze at four key allowances to consider before the end of the tax year.
Maximizing Pension Contributions
For many, pension contributions remain the most tax-efficient savings method. Allocating money into a pension allows individuals to receive tax relief, effectively boosting savings. Most people can contribute up to £60,000 per tax year and receive relief at the highest marginal rate. Yet, for higher earners, this annual allowance may be tapered down to as low as £10,000, though unused allowances from the previous three tax years can sometimes be carried forward.
Trott noted, “Alongside this upfront tax relief, it’s as well worth noting that investments held within a pension can also grow free from UK income and capital gains tax, helping savings build more efficiently over time.”
Understanding ISA Allowances
Individual Savings Accounts (ISAs) are a crucial savings tool, offering tax-exempt interest, income, and growth. Currently, individuals can save up to £20,000 per tax year across both cash and stocks and shares ISAs, but this allowance cannot be carried forward. However, changes are coming: from April 2027, the tax-free allowance for cash ISAs will be reduced to £12,000, while the allowance for stocks and shares ISAs will remain at £20,000.
Capital Gains Tax and Gifting Considerations
Capital Gains Tax (CGT), levied on profits from asset sales including property and stocks outside of an ISA, is another area to consider. For the current tax year, individuals have an annual exempt amount of £3,000. Beyond this, basic rate taxpayers pay 18 percent CGT, while higher and additional rate taxpayers pay 24 percent. Trott suggested that the CGT allowance is often underutilized, and utilizing it when possible can reduce future tax liabilities.
Spouses and civil partners can combine their allowances, potentially creating a £6,000 tax-free buffer for jointly held assets, though Trott cautioned that the rules are complex and professional advice is recommended. The annual inheritance tax (IHT) gifting exemption stands at £3,000, allowing individuals to give away money or possessions without it being part of their estate. This allowance can be carried forward from the previous year, potentially allowing for a £6,000 gift. Additional gifting allowances include £5,000 to a child or £2,500 to a grandchild as a wedding gift, alongside the annual exemption, and up to £250 to as many individuals as desired.
As the end of the tax year approaches, reviewing these allowances and making informed decisions can significantly impact long-term financial well-being. Understanding these options and seeking professional guidance when needed can help individuals optimize their financial strategies and minimize their tax burden.
The coming weeks present a crucial window for financial planning. Retain an eye on further updates regarding tax regulations and consider consulting with a financial advisor to tailor a strategy to your specific circumstances.
Disclaimer: This article provides general information and should not be considered financial advice. Consult with a qualified financial advisor for personalized guidance.
