New tax year, new…allowances!

The current tax year is running out, ⌛ with 5 April marking the last day of the 2023/24 edition. It also marks the deadline for when you can use up certain allowances or claim some tax breaks before the new tax year starts on 6 April. So, here’s your quick explainer on why the end of the tax year matters and a handy 5-point checklist to make sure you’re good and ready for it. 💪

When does the new tax year begin?

In the UK the new tax year begins on 6 April. It’s definitely the less glamorous version of New Year’s Day but it’s worth popping in your diary. 📗

It’s the same date every year, no matter which day it falls on – even if it falls on a weekend or bank holiday.

It also means that 5 April is the last day of the current tax year, and the last day you can use your current year’s tax allowances. And that’s really quite important. 👇

Why is it an important date for your diary?

6 April is super important because it’s when your tax allowances reset. Your tax allowances are the amount you can earn tax-free every year, before you have to pay income, capital gains or dividend taxes.  If you go over your tax allowances you’ll have to pay some tax, and for dividends and capital gains that usually means contacting HMRC or completing a tax-return so you can pay back the amount owed. 📝

 

Your tax allowances (2023/24)
Personal (income)	£12,570
Dividend	£1,000
Capital gains	£6,000

 

As well as the tax allowances resetting, your annual limits on how much you can save into your tax-efficient ISA and pension accounts resets. Keeping within the limits each year means whatever you pay into these types of accounts can be invested tax-free! 🙌 That makes using these accounts some of the best ways you can optimise how you invest.

Something to bear in mind for ISAs (though not for pensions), is that the limit is use it or lose it. So you need to make the most of it each year. Once the new tax year begins, you say goodbye to any tax-free allowance you had remaining from the previous one. 👋

 

Your tax-free account allowances (2023/24)
ISA	£20,000
Lifetime ISA	£4,000*
Pension	£60,000 or yearly gross income** (whichever's lower)

 

*The £4,000 lifetime ISA allowance is part of your overall £20,000 ISA allowance. So if you use it all, you’ll have £16,000 left of your ISA allowance you could use for another type of ISA. ISA rules apply and can change.

**This includes the tax relief you get from the government and any contributions your employer makes. Pension rules apply and can change.

Tax year checklist ✅

With all these allowances in mind, here’s your 5-point checklist to make sure you’ve made the very most of what the current tax year can offer you. Once you’ve ticked them off you can reward yourself with a big pat on the back (or some chocolate, your choice!).

Some of them may not apply to you – the tax system has lots of complicated 'ifs' and 'buts' in it!  🙄 If one doesn’t, it might be something to look out for in the future or tell your friends about – they might well thank you!

1. Top up your ISAs 💰

£20,000 is a generous allowance and very few of us use it up each year. So if you’ve got spare cash that you were planning to invest, don’t put it off! Pay it into your investment ISA before the end of the tax year to make sure your investments can grow tax-free. Remember it’s use it or lose it and who knows, you might be able to use the full allowance next year, so make the most of this year’s now.

💡 The lifetime ISA has a lower limit of £4,000 a year, so if you have a lifetime ISA you might want to top that up first before using your remaining £16,000 ISA allowance. Topping up your lifetime ISA has the very nice added benefit of the 25% government bonus!

2. Don’t neglect your pension ❗

Like with ISAs, not many of us are maxing out the allowance we can put into our tax-efficient pension pots, or the free money we could get from the government just for saving into them! While you can carry over unused pension allowance, unlike the ISA allowance, if you’re planning to top up your retirement savings soon it’s a good idea to do it before the end of the tax year. It means you’ll sneak another payment into this year’s allowance and earn an extra tax-relief boost on the way.

Plus, something always worth remembering with your pension is that the earlier you invest, the longer your investments have to grow, and the more likely you’ll see the sort of returns you’re hoping for. 

3. Think about cashing in your gains 🤑 

If you invest outside an ISA or a pension, for example in a general investment account, and your investments have grown in value, you could find you have to pay capital gains tax. You’ll only pay the tax once you’ve sold the investments though (which is called ‘realising’ the gain).

Here’s where it’s important to bear in mind the capital gains allowance (the gains you can make before being taxed). It’s currently a sizeable £6,000 but it’s being slashed to £3,000 on 6 April, and the capital gains allowance is another one that doesn’t roll over to next year. So check if you have any gains that you want to cash-in this year to avoid a bigger future tax bill.

4. Protect your side-hustle 😎

Everyone is trying out ways to make extra money at the moment, but make sure you’re not taxed on that money this year, if you can avoid it. If you sell stuff on the side, have a little Etsy business, do some casual work on weekends or rent out items you own for an income, all of that can be tax free!

Here's another tax-free limit for you: everyone can earn £1,000 from something that’s not their main job before they have to pay tax on the money, and it’s called the ‘trading allowance’. Check out the government advice to see whether you need to declare your side-hustle or not.

5. Be prepared for next year 🛠

The government has made some changes to the capital gains and dividends allowances for next tax year, starting from 6 April, so it’s important to check whether these changes will affect you and how. If you need more info on this head to the government’s page on all things tax.

Being aware of these changes means that you can plan around them, make more of this year’s allowances if you can, and ultimately stop HMRC taking more than they need to from you! Just remember, reading info about tax changes here or anywhere else isn’t a substitute for full advice – if you need to you should contact a suitably qualified financial adviser.

Let's make the most of this tax year! 💪

If you haven't already got an investment ISA you're paying into this year, check out Dodl's. Or if you've already got a Dodl investment ISA, it might be worth seeing if you've any spare cash you could top it up with before the tax year runs out?

They're your tax-free allowances, so knowing and making the most of them before 6 April is a savvy investing move!

 

Open or top up your Dodl ISA

 

🔔 Tax, ISA and pension rules apply and can change – and how you're taxed depends on your individual circumstances. Finally, the value of investments can always go down as well as up.