Article updated: January 2023
As it is the middle of January, there are now less than three more months left to utilise your ‘use it or lose it’ tax allowances. However, ensuring you take advantage of these HMRC tax breaks can significantly affect your annual wealth growth plan, so what do you need to do to maximise your tax allowances?
Our top 5 tips to maximise your tax allowances before the 2022/23 financial year ends
Below are the five most common tax allowances that cannot be carried forward and will be lost if not used by 5th April 2023.
1. ISA Allowance for 2022/2023
Everyone has an allowance of £20,000 to invest in an ISA for the 2022/2023 tax year.
As ISAs offer tax-exempt growth and withdrawals, this is usually the first allowance to be used. It may be sensible to consider whether other less tax-efficient investments could be encashed to generate funds to use the ISA allowance. Don’t forget; this allowance is the maximum allowed per tax year across all the ISAs & LISAs, products you have.
This year, in particular, is an excellent time to review your Cash ISA arrangements and the rates you are getting. While interest rates remain at record-low levels, we continue to see a strong recovery in equities on the back of the pandemic representing a real opportunity for growth.
We all know that ISAs are one of the most tax-efficient investment vehicles in the UK, but for many of us, this ISA allowance becomes wasted when we invest in Cash ISAs. So why use an investment product like an ISA that benefits from tax-free growth and then invest it in a Cash ISA which is hardly growing?
Maximising the tax-free growth of ISAs means that many of our Clients will want to target growth over and above bank interest rates. To help achieve this, we are delighted to offer our Direct Offer Service, which allows you to transfer any Cash ISAs you have quickly and simply into a Stocks & Shares ISA inside your existing True Potential Portfolio.
This service is completely free of charge with no initial fee from ourselves, just our Ongoing Service Fee of 0.75% per annum. If you are not currently a Redwood Client and would like our help to transfer your Cash ISA(s) for free, submit your details via our website contact form and request an ISA Transfer Form, or call 01489 877 547, and we will arrange to send one out to you.
2. Personal Allowance for 2022/2023
This tax year, the maximum personal allowance is £12,570, though the amount will vary between individuals. Whatever your personal allowance, do not miss out on using it. If you are planning any taxable withdrawals, it may pay to bring them forward or withdraw up to your taxable allowance and invest it into your ISA.
3. Annual Allowance for 2022/2023
You can usually invest a maximum of £40,000 (or the maximum of your total earnings, if lower) into a pension arrangement each tax year if you have not previously accessed your taxable benefits. It is also possible to carry forward an additional three years of allowance if you do not use it – but there are rules around this, so get in contact with us before you take action.
4. Capital Gains Allowance for 2022/2023
Each tax year, you can crystallise gains up to the annual exempt amount with no CGT to pay; this year (2022/2023), the allowance is £12,300. Where losses have been realised in the same tax year, these offset any gains before the exempt amount. If no gains were crystallised in this tax year, then the loss can be carried forward and offset against gains in future years. However, it is essential to remember that you can only carry forward losses, not the actual allowance!
5. Inheritance Tax Exemptions for 2022/2023
An individual has an annual exemption for lifetime transfers of £3,000 per tax year, which anyone can give away. This allowance can be carried forward one year, so if you didn’t make a transfer last year, you could give away £6,000 this year. There are more IHT exemptions, the details of which you can find here.
Contact Redwood Financial for Advice
Please note that this blog article is not advice and does not mean that using these allowances is right for you. Please contact us if you want further information on any of the above or think you have allowances that aren’t being used. One of our advisers can provide bespoke advice tailored to your situation.
