The end of the current tax year 2022/23 is looming – which means time is running out to take advantage of any unused allowances. Here we look at 4 key opportunities to consider prior to 5th April 2023.
ISA Top Ups
Adults have an ISA allowance of £20,000 in the current tax year. An individual can invest in any different type of ISA including Cash, Stocks & Shares, Innovative Finance or Lifetime ISAs – up to a maximum of £20,000 in the tax year.
Where an ISA provider has adopted ‘Flexible-ISA’ status, you could also have an additional ISA allowance which allows you to repay in all charges and withdrawals incurred in the same tax year, to the same ISA.
Top ups should be considered where individuals have available funds and affordability. The same applies to spouses that have not utilised their full allowance.
Children under age 18 also have their own annual ISA allowance – Junior ISAs (JISAs) let you save or invest up to £9,000 this tax-year via a Cash JISA and/or Stocks & Shares JISA.
Pension Top Ups
Each person can make pension contributions up to the annual allowance of £40,000 per tax year. Approaching the end of the tax year, it could be a good opportunity to review the amount paid in since 6 April 2022 to date and consider whether an additional lump sum ‘top up’ payment could be made.
Individuals that are part of a company pension scheme may be able to have any additional pension payment matched by their employer.
Self-employed individuals or Company Directors may be able to make additional payments into their private pensions from profits where sufficient funds are available.
Consideration should also be given to the carry forward rules which allows utilisation of the previous three tax years annual allowances, where earnings permit.
Capital Gains Tax (CGT)
The CGT annual exempt amount is being cut significantly from the current level of £12,300 down to £6,000 in 2023/24 and then again to £3,000 in 2024/25. There is therefore an opportunity to fully utilise this tax year’s CGT allowance by realising gains up to the current exempt amount before 5 April 2023, whilst it is available. A tax efficient way to do so is to move the money into ISAs and/or pensions, where appropriate.
Voluntary National Insurance (NI) Contributions
It should also be noted that the current extended window for voluntary National Insurance (NI) contributions, which allows eligible people to go back up to 16 years, is coming to an end on 31st July 2023. After this date voluntary NI payments can only be made for the past 6 years. Eligible people should check their NI contribution status to identify any gaps of missed ‘qualifying years’ in their record.
For more information on this, read our blog here.
Changes to Taxation
From 6th April 2023 there are two key changes to the way income and dividends are taxed.
The reduction of the additional rate income threshold – from £150,000 to £125,140 – meaning current higher rate taxpayers will suffer 45% tax on income over £125,140 from the new tax year.
Furthermore, the tax-free dividend allowance is also being cut from its current level of £2,000 to £1,000 in 2023/24 and to £500 in 2024/25. The additional rate of 39.35% will apply to those with total income above the new lower threshold of £125,140 from 6 April 2023
Individuals may wish to review their arrangements for funding ISAs, pensions and investments in light of these changes. Our Financial Advisers can provide a full review of an individual’s circumstances and advise on a financial plan that will help work towards long-term goals.
Gresham Wealth Management work with individuals and families with £250K or more of investable assets. To arrange an initial chat with one of our Financial Advisers, please get in touch.