The easy way through your tax year end

A little now goes a long way later. When planning for retirement, the golden rule is to make the most of your tax allowances each year. Ahead of the 2023/24 tax year end on 5 April, it’s essential to make sure you’re using all the allowances you’re entitled to.

When thinking about the future, there are two important aspects to consider. What does happiness look like to you down the line? And is your money working hard for you to achieve these goals?

In this article, we’ll cover the key points to ensure you’re maximising your chances of reaching your retirement aspirations.

ISA: use it or lose it

An Individual Savings Account (ISA) is a straightforward way to make your money work hard for you. The allowance is set at £20,000 per tax year, of which any gains are completely free of income tax and capital gains tax. Any withdrawals made from an ISA will also be tax-free.

Your allowance does not carry forward, which means that if you don’t use your ISA allowance for the 2023/24 tax year by 4 April, you will be unable to use it in later years. However, at the start of the new tax year, the allowance resets, so using it early on will be of benefit over the longer term.

Pensions: no plan is the same

Your pension contributions benefit from compound investment growth – this means that any returns are reinvested, potentially creating further, faster growth. Making regular contributions to your pension helps with compounding, and the long-term effect of compounding is extremely powerful.

This is the main argument for investing as much as you can into your pension, as early as you can. It is important to be mindful of the pension annual allowance, which is currently £60,000 per year.

You can get pension tax relief on what you pay in, even if you don’t work or pay tax (subject to limits). The underlying investments grow free of income tax or Capital Gains Tax (CGT).

Unlike an ISA, it is possible to carry forward your pension allowances if you haven’t used all your allowances from the previous three tax years. If that is the case, it’s worth spending some time working out the best contribution plan. All individual’s circumstances are different, so the best course of action in these instances is to speak to a Chartered Financial Planner.

Capital gains tax exemptions

The capital gains tax (CGT) allowance for year 2023/24 is £6,000. However, the government has halved this allowance in tax year 2024/25, meaning you’ll only be able to realise tax-free gains of up to £3,000.

It’s not by chance CGT is widely considered one of the most complex taxes. Selling a gift or an asset that’s gone up in value triggers this type of tax and therefore not only is it important to make use of the full allowance available for year 2023/24, but it is always particularly helpful to work out the best way of realising your gains.

Talk to us

Every individual has different strengths, plans and ambitions – and knowing that is the strength of the Chartered Financial Planners at 7IM. Whether you’re looking at retirement in the short, medium or long term, or whether you’re currently enjoying it, a financial plan needs to be unique to you and to have the shape of your ambitions.

So maybe you’re just looking to get your finances in better shape, beginning to plan your retirement, or perhaps you’ve decided to change your course because you have a new dream. One thing is certain: making the most of your tax allowances is an essential part of the journey.

If you’d like to discuss the best way to leverage your tax allowances, or to check if you’re on track to reach your retirement ambitions, talk to us.