As happens every year, the tax year ends on 5th April. Given that all sorts of tax allowances are lost at the end of the tax year if they are not used, this is an excellent time to review various aspects of your finances.
ISAs
Everyone has an ISA allowance of £20,000 a year, which can currently be split however you want between cash ISAs and stock and shares ISAs. This allowance does not roll over to the new tax year; if you haven’t used it by 5th April, you lose it. So it is worth checking whether you have taken full advantage while there is still time.
Pension Contributions
Most people have a £60,000 pension contribution allowance each year; exceeding this limit results in a tax charge. The good news is that you can carry forward any unused allowances for up to three years. What that means is that if you have any unused allowance remaining from the 2022/23 tax year, you only have until 31st March to use it, or it will disappear. Given how valuable the tax relief on pension contributions is, it is certainly worth making sure you maximise this tax-saving opportunity.
Capital Gains Allowances
Although the Annual Exempt Amount – the amount of profit you can make from selling assets in a tax year – has steadily been whittled away by successive Chancellors, for the current tax year it still stands at £3,000 for individuals. If you have been considering divesting any parts of your portfolio, perhaps to reinvest it elsewhere or to free up cash for some other purpose, and you haven’t yet used your CGT allowance, it is certainly worth considering before the tax year ends and it is lost (the Annual Exempt Allowance cannot be carried forward to the next tax year).
Inheritance Tax Planning
As the tax-free allowance remains frozen until at least 2031, more and more estates are going to be dragged into the orbit of inheritance tax. That means using annual gifting allowances is becoming an ever-more important part of IHT planning. Currently you can give away up to £3,000 in any one tax year (this allowance can be carried forward one year only); you can also give as many small gifts of up to £250 per person in each tax year, provided the recipient hasn’t received a gift from you as part of another allowance.
Did you know?
The tax year starts on 6th April because a number of accidents of history.
Historically, there were four ‘quarter days’ in the year, when rents, debts and taxes were to be settled. Under the Julian calendar, which Britain used right up until 1752, the first of these was 25th March (‘Lady Day’), and this was traditionally the beginning of the tax year.
But by the middle of the 18th century, pretty much all of Europe had long since changed to the Gregorian calendar, which had the distinct advantage that a year lasted 365 days, and not 364 days, 23 hours and 49½ minutes, as was the case with the Julina calendar. Britain finally realised it had to fit in with everybody else in 1752, but changing meant that we had to ‘lose’ 11 days to catch up.
The people were furious that they still had to pay a full year of taxes even though that year was only 354 days long – so the Treasury simply moved the date of the new tax year by 11 days – and that is why we still move into a new tax year on 6th April.