Key tax allowances to use before the end of the 2023/24 tax year

With the end of the 2023–24 UK tax year fast approaching, it’s important for taxpayers to review their finances and ensure that they are making the most of any available tax allowances and reliefs. Taking full advantage of these allowances can help to reduce your overall tax liability and to potentially build your wealth further through tax reliefs.  

Here are some allowances to consider: 

Individual Savings Accounts (ISAs) allow UK residents to save and invest money in a tax-efficient way. ISAs provide a tax-free shelter, the adult allowance for the 2023–24 tax year is £20,000. Any unused ISA allowance does not carry over to future tax years – if you do not use it, you lose it! 

Junior ISAs (JISAs) are available to children under 18 living in the UK and provide similar tax benefits for saving and investing. In the current 2023–24 tax year, you can contribute up to £9,000 into a JISA for each eligible child. As with adult ISAs, the JISA allowance expires at the end of the tax year. It is important to consider that the JISA becomes a normal ISA from age 18, at which point it becomes fully accessible. 

Children aged 16-17 can currently use both the JISA and ISA allowances, however the adult ISA is restricted to Cash ISAs only. They are therefore able to contribute up to £29,000 per year over this two-year window.   

From 6th April 2023, the pension annual allowance increased from £40,000 to £60,000. The annual allowance for higher earners tapers down and can be as low as £10,000 per year. The allowance reduces by £1 for every £2 of adjusted income over £260,000 to a minimum of £10,000 for those with an income of £360,000 or more. 

In some cases, it is possible to carry forward any unused annual allowance from the previous three tax years which can give scope for additional pension contributions where suitable.  

For those who have already drawn pension benefits, in some cases the annual allowance is capped at £10,000 by the Money Purchase Annual Allowance, so care is required.  

An often-overlooked pension allowance is that of your child or grandchild… They can benefit from tax relief on pension contributions up to £3,600 per tax year at a net cost of £2,880.  

The dividend tax allowance for the 2023–24 tax year will be reduced from £2,000 to £1,000, allowing the first £1,000 of dividend income received to be taxed at 0%, with dividend income above this threshold taxed at the marginal rates: 

• For basic-rate taxpayers, dividends above £1,000 will be taxed at 8.75%. 
• At a higher rate, taxpayers will pay 33.75% tax on dividends above £1,000. 
• Additional rate taxpayers will pay 39.35% tax on dividends above £1,000. 

The dividend allowance will be halved again on April 6, to £500 each.  

The Annual Exempt Amount for Capital Gains Tax (CGT) allows you to realise some tax-free gains each tax year. For the 2023–24 tax year, the allowance is £6,000 for individuals and personal representatives, and £3,000 for most trustees. Capital gains over the allowance are taxed at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers (the applicable rates on residential property are 18% and 28%). This means that you can realise gains up to these amounts before paying any CGT. The CGT allowance does not roll over to future tax years.  

Like the dividend allowance, the CGT allowance is also halving in the 2024–25 tax year to just £3,000 for individuals. Therefore, it may be efficient to consider realizing taxable gains before April 5, 2024, to take advantage of the current higher allowance. You may also be able to deduct losses or claim relief to reduce your CGT bill. The CGT rate you pay will depend on your total taxable income and the tax band you fall into. 

If you would like to reduce the potential inheritance tax (IHT) liability on your estate, gifting assets during your lifetime can be a useful strategy. 

The IHT annual exemption allows you to give away up to £3,000 per tax year without it being counted towards the value of your estate. If you’re married or in a civil partnership, you both have this allowance. Give a combined tax-free gift allowance of £6,000 annually. This exemption can be carried forward one tax year if it is unused. 

Regulatory Information 

This communication does not constitute tax or financial advice. All information is accurate at the time of writing. The value of investments can go down as well as up. Capital is at risk. Featherstone is a trading name of Featherstone Partners Limited, Old Brewhouse, Yattendon, Berkshire, RG18 0UE, which is authorised and regulated by the Financial Conduct Authority (799741) and registered in England (Company Number 11039522). 

Our clients enjoy the qualities of a smaller, friendlier firm, while benefiting from our team’s experience working at firms such as Goldman Sachs, UBS, GAM, Ruffer, and Close Brothers. Aligning our interests with those of our clients, we invest alongside our clients, and our founders and staff are among our largest (and smallest) investors.