Five early-bird changes to get the most out of this tax year
At the beginning of a new tax year, all of us are gifted with a number of new tax allowances which we can make the most of.
While many of us wait until the end of the financial period and then rush to ensure we don’t lose the allowances, absorbing the changes and making plans early gives our money a whole year longer to work hard.
Here are five things you should consider doing straight away to make the most of the changes and minimise the impact of some allowances that have been frozen or cut by the Chancellor for 2023/24.
Open your new ISA and start a direct debit
You have £20,000 in ISA allowances this tax year, so whether you are going to save or invest into it, it makes sense to get started as soon as possible to make the most of returns. A regular direct debit, putting money into the ISA every month will stop the stress of trying to ‘time’ the market and put your money in at the best possible point and smooth performance – as well as ensuring that you can forget about it for the rest of the year.
Move dividend-bearing investments into ISAs or pensions
Your dividend allowance – the amount you can earn from dividends from shares or funds, has halved since last year and is now just £1,000 before you start paying tax on it. This means if you have investments outside of an ISA that pay you dividends you are more likely to end up paying tax. You could use some of your new ISA allowance to shift investments that pay dividends into a tax-free wrapper but be aware that you will have to sell them and buy them back within the wrapper to do this. You could also buy back these investments within your pension if you are not going to need to use them for longer.
Make a CGT plan
As well as a new ISA and pension allowance, you have a new capital gains tax allowance for the new tax year. This has also been halved, to just £6,000, which means that it is more important than ever to use it every year and have a plan to minimise the tax burden of capital gains. This means making an annual plan of what you might sell, and consulting a financial adviser about ways to minimise the tax which may include transferring assets between spouses (which does not incur Capital Gains Tax) and using specific tax-saving funds (of which more below). Starting early with this will give you time to get all of your plans in place. You cannot carry forward your CGT allowance to another tax year, so careful planning is vital.
Consider EIS and VCTs
Enterprise Investment Schemes and Venture Capital Trusts (EIS and VCTs) carry specific tax breaks that can help to reduce your tax bill. However, VCT dividends are tax free so won’t use up your dividend allowance, and the sooner you invest the more quickly you’ll benefit from the dividend as well as tax relief. EIS also carry tax relief and the investment is free from inheritance tax after two years. These are risky investments and not for everyone, so it is vital to take advice.
Fill in your tax return
Getting your tax return in early can only benefit you. Many accountants offer preferential rates at the beginning of the tax year when times are slower. Plus, once you have filled in the tax return you can request an immediate refund of any tax you owe. You have the same amount of time to pay any tax due, so you won’t lose out on any interest, and will have time to plan how to pay it.
12th April 2023