Monday, April 6, marked the start of a brand new tax year, and with it a fresh set of allowances and tax breaks that can make a real difference to household finances if used to the full.
From April 6, every adult gets a new £20,000 ISA allowance, and can use it to save tax-efficiently in cash or invest in stocks and shares. All income and gains are free from tax for life, putting it beyond the reach of Chancellor Rachel Reeves.
It may also be worth considering a self-invested personal pension, or SIPP. Under the annual allowance, everyone can contribute up to 100% of their income, to a maximum of £60,000, and claim tax relief on top.
Andrew Tully, technical services director at advisers Nucleus, said: “For many, especially higher earners, this remains one of the most powerful ways to cut a tax bill while building long-term wealth.”
Filling an ISA or contributing to a pension early in the new financial year gives investments longer to grow.
Inheritance tax gifting rules also restart, said Kevin Mountford, personal finance expert at Raisin UK. “You can give away £3,000 a year, small gifts of up to £250 per person with no limit on recipients, and unlimited gifts to your spouse or civil partner tax free.”
You can also make regular tax-free gifts from surplus income. But other gifts made less than seven years before death may be subject to IHT.
Pensioners in particular should consider using gifting allowances to pass on wealth gradually, reducing the value of their estate over time. But don’t gift cash or assets you might need later.
The capital gains tax (CGT) annual exempt amount refreshes too, albeit at just £3,000. Even so, spreading disposals across tax years can reduce the overall CGT bill on gains from selling non-ISA shares and other assets.
The dividend allowance is now just £500. Income above that from non-ISA shares is now subject to a 2% surcharge, which means basic-rate taxpayers pay 10.75% and higher-rate taxpayers pay 35.75%. Hold income-generating assets in ISAs where possible.
Spreading savings between spouses can better utilise personal allowances and lower tax bands.
A bit of planning now can prevent a bigger tax bill later. The new tax year is a clean slate, and it pays to use it.