Make the Most of the End of the Tax Year: Last Minute Tips for the 5th April 2023

Have you been working hard all year, but worried about your finances and tax year end?

Don't panic - we've got you covered with our essential last minute tips for the 5th April. From dividend tax to pensions and ISAs, these tips will help you make the most out of the end of the tax year. 

Organise your paperwork to ensure you have all the information you need to complete your tax return. Calculate your figures using the right tools and make sure you're taking advantage of any deductions or credits you may be eligible for. Don't forget to submit your return before the deadline to avoid penalties. 

Take advantage of the £20,000 ISA limit and make sure to use up any unused allowances. For pensions, consider increasing your contributions before the end of the tax year, but be aware of the maximum cap if your income is higher than average. 

Remember to also check for free money from the government and reduce your capital gains tax by cashing in any gains up to the annual limit. Finally, if you have kids or grandkids, open up an ISA and Junior SIPP for them to give them a great start in retirement. 

Follow these tips and you'll be able to get everything done for the end of the tax year in no time.

Tip 1 - Watch that income

Anyone earning more than £100,000 per year begins to lose their tax-free personal allowance at a rate of £1 for every additional £2 they earn. This results in a remarkably high effective tax rate of 60% on this income for you. You can reduce your income back down below this threshold and avoid paying the additional tax by investing money in pensions.

Not just this, but earnings above £50,000 could see you losing any child benefit payment, £100,000 losing tax-free childcare, plus many more. A contribution to a pension could benefit you in the present, not just in the future.

Tip 2 - Pensions and ISA’s

Everyone receives a £20,000 yearly ISA limit, so be sure to use it as much as you can because you cannot roll over any unused allowances to subsequent years. If you don't use it, you lose it.

Use it or lose it.

Looking at pensions, many people are permitted to contribute up to a maximum of £40,000 per year to their pensions (or 100% of relevant earnings if this is lower. If you have no relevant earnings, you are limited to 3.6k per year), so determine if you want to increase your contributions this year and make the change before the end of the tax year. This limit is not as strict as the ISA allowance, as unused allowances can be carried over for up to three years, but it's still something to think about. Just be aware that there will be a restricted yearly pension limit for anyone with a very high income or who has already begun to take taxable income from their pension.

Tip 3 - Capital gains and new allowances

Capital gains tax will be applied to any investment gains that are held outside of an ISA or pension. In the current tax year, investors are exempt from paying taxes on investment gains up to £12,300. Gains beyond that threshold are included in income and subject to taxes at 10% if they fall within the basic-rate tax band and 20% if they do not (an additional 8% is applied to the tax rate if the gains are from a second property).

More change though, starting in April, the tax-free allowance will be reduced, limiting the amount of gains that can be made before taxes are due to £6,000 for everyone. Considering this, it's even more crucial to decide if it's worthwhile to cash in any gains this year, up to the annual limit, in order to avoid paying tax on them in the future.

Tip 4 - Look after your investments

The amount you can make before paying dividend tax is also being reduced starting in April, from the current £2,000 per year to only £1,000. Meaning this tax will affect more people than before.

As a result, it is now more economical than ever to place any income-producing investments inside of an ISA to shield them from taxes.

Tip 5 - Check for free money

Make sure you're taking advantage of any government tax incentives for which you qualify, such as the marriage allowance or tax-free childcare, which provides a 20% boost to funds used for childcare. It is important to get every bit of free money possible!

Tip 6 - The kids can help

Many parents have good intentions but never actually get around to opening savings accounts for their kids. However, you should use up some of their ISA limits for this year if you wish to contribute money to an ISA for them before you lose it. You can now contribute up to £9,000.00 annually to an ISA for each child. When they turn 18, the money immediately converts into a regular ISA and transfers into their name, giving them full access. Until then, they won't be able to access the funds. 

Opening a Junior SIPP for your child or grandchild is another choice (I have recently opened one of these for each of my children). Each year, you may contribute up to £2,880; however, government tax assistance automatically increases that to £3,600. This is a long-term strategy because your child won't be able to access the money until they are at least 57, possibly later, if the government raises the eligibility age. However, what a booster start to retirement they will get!

To conclude...

Now that you have all the information, it's time to get started and make the most out of the end of the tax year! Get organised, calculate all your figures and remember to benefit from any free money you may be eligible for. Most importantly, use up all your allowances before the 5th April - you don't want to miss out on anything!