We are through tax year end and have made it the other side into a brand new tax year. We thought that this would be a prime opportunity to recap on all the allowances that are available to you, whether there are any changes to last year and to ensure that you are utilising these (if applicable). We want to bring all of these to your attention right at the beginning of the tax year to ensure you have plenty of time to make use of these. We also want to make you aware of some other changes and things to be aware of.

ISAs

One of the most important allowances to consider is your Individual Savings Account (ISA) allowance. This is a type of savings account that you can use to hold stocks, shares, or cash and any interest or gains you make are tax-free. The ISA allowance for 2024/25 is still £20,000 (we haven’t seen a change to this for several years).

Pensions

Another crucial area to think about is your pension contributions. Pensions are tax-efficient savings vehicles, and the government provides tax relief on your personal pension contributions. The annual allowance for pension contributions in 2024/25 is £60,000, or 100% of your relevant pensionable earnings (whichever is lower). If you have the means, contributing the maximum amount to your pension can provide significant tax benefits. Also, if you are a business owner, and an employee of your business, then this is a great opportunity to extract profits from your business and make employer pension contributions. This has double benefits as not only does it increase your retirement provision, but it also an allowable expense and reduces corporation tax too!

Capital Gains Tax

Each individual has an annual tax-free allowance, known as the Annual Exempt Amount, for capital gains. In 2023/24, this was £6,000 per person HOWEVER, this has now reduced to £3,000 per person in this 2024/25 tax year. This is another substantial drop so please be mindful of any actions that you take this year that could impact this as it can quickly get used up and to avoid capital gains tax, you need to make sure you don’t breach it.

Dividend Allowance

Dividend Tax comes into play when you own shares within a company. Each person has a dividend allowance of £500 however, dividends earned in excess of this threshold are taxed at differing rates depending on your income tax band (i.e., basic, higher or additional rate). There are exclusions where dividend tax will not apply such as in tax-free savings vehicles like ISAs, or Pensions, and also in some higher risk investments. Be sure to find out now if this will impact you to make sure you’re not stung later on in the tax year.

Personal Savings Allowance

The Personal Savings Allowance is the amount of interest you can accrue before you start paying tax on it. Again, this doesn’t apply to vehicles such as ISAs or Pensions. It also doesn’t apply to certain NS&I products such as Premium Bonds. However, any interest you are accruing in normal savings accounts within the bank will be subject to this. If you are a basic rate tax payer then you can earn up to £1,000 in interest each year before you start paying tax on it (£500 for higher rate tax payers and £0 for additional rate tax payers). So be sure to check out how your savings are structured to ensure that you won’t fall foul of this.

State Pension and Marriage Allowance

As part of the triple lock guarantee, the State Pension increased by 8.5% in April meaning that there has been an increase to state pension income this year. If you were receiving just under the personal allowance last year, then it could be likely that your state pension has pushed you over this year, meaning that you will become a basic rate tax payer on the excess. There could be ways to mitigate this. For example, if you are married, and your spouse is a non-tax payer still, then they can transfer up to 10% of their personal allowance to you. This is known as the Marriage Allowance. This doesn’t just apply to state pension income but any kind of taxable income so this could be worth checking out.

We hope that this is helpful and if you have any queries on any of what we have spoken about above, then please do not hesitate to contact us.

This is for information only and does NOT constitute as financial advice.