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The 2022/23 end of tax year guide

7 allowances to make use of before 5 April 2023

16/02/2023
Tier 1_Business
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The 2022/23 tax year ends on Wednesday 5 April.

After this date, many allowances will reset, so it could be the last chance to use some of them.

Here are seven allowances to consider using before the 2022/23 tax year ends.

1. Marriage allowance

2022/23 allowance: up to £1,260

Using the Marriage Allowance could reduce an Income Tax bill by £252.

The Marriage Allowance allows a spouse or civil partner to give some of their unused Personal Allowance to their partner.

The Personal Allowance is the amount of income that can be received before Income Tax is due. For the 2022/23 tax year, it is £12,570.

If a couple has an income below this threshold, the person with the lower income may be able to pass on up to £1,260 of their Personal Allowance. This effectively increases the Personal Allowance of their partner to £13,830. This could then reduce their tax bill for the 2022/23 tax year by £252.

To be eligible the couple must be married or in a civil partnership. The partner with the higher income must also pay Income Tax at the basic rate in England, Wales, or Northern Ireland. This usually means their income is between £12,571 and £50,270.

In Scotland, the higher income earner must pay the Scottish starter, basic, or intermediate rate of Income Tax. This usually means their income is between £12,570 and £43,662.

Marriage Allowance can be backdated for up to four years. So, the couple have until 5 April 2023 to use their entitlement from the 2018/19 tax year.

Please note: HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

2. ISA allowance

2022/23 allowance: £20,000

An ISA provides a tax-efficient way to save and invest.

The interest or returns earned on money held in an ISA are free of both Income and Capital Gains Tax (CGT). For the current tax year, up to £20,000 can be added to an ISA.

An annual allowance can be spread across several different ISA types.

For adults, there are five different types of ISA that can be contributed to:

  1. Cash ISA: A Cash ISA operates similarly to a savings account, but the interest earned is paid free of Income Tax and CGT. Some Cash ISAs are subject to restrictions, such as how much can be withdrawn.
  2. Stocks and Shares ISA: Using a Stocks and Shares ISA allows investment in the stock markets and other assets. Returns are free of Income Tax and CGT. As with all investments, a long-term outlook is best and an understanding of risk profiles is needed when using a Stocks and Shares ISA.
  3. Lifetime ISA (LISA): LISA's can be opened by anyone between 18 and 39. A LISA can be a Cash or Stocks and Shares ISA. A 25% government bonus can be received on any contributions. However, there are panalties if a withdrawal is made before the age of 60 for any purpose other than buying a first home. The maximum amount that can be placed into a LISA each tax year is £4,000.
  4. Innovative Finance ISA: An Innovative Finance ISA is designed for peer-to-peer lending investments. Usually, these kinds of investments are higher risk than traditional alternatives, so are not appropriate for most investors.
  5. Help to Buy ISA: While Help to Buy ISAs can no longer be opened, if there is one already open, contributions can still be made until November 2029. Up to £200 can be added per month and the government will top up savings by 25% (up to £3,000) when buying a first home.

3. Dividend allowance

2022/23 allowance: £2,000

Using a Dividend Allowance could be a tax-efficient way to boost income.

Dividends are paid by companies to share out the profits they have made. If shares are held in a dividend-paying company, payments can be received. The amount received will usually be dependent on performance and stock price.

Dividends can also be received if someone owns their own business. Many company directors draw a combination of salary and dividends from their business to maximise the tax efficiency of their income.

The Dividend Allowance means every individual can receive up to £2,000 in dividends without incurring tax. So, a company director, can pay themself up to £2,000 in dividends from the business without paying any Dividend Tax.

How much tax paid on dividends that exceed the allowance will depend on the Income Tax band:

  • Basic rate: 8.75%
  • Higher rate: 33.75%
  • Additional rate: 39.35%

4. Capital gains tax annual exempt amount

2022/23 exempt amount: £12,300

Using a Capital Gains Tax annual exempt amount could save money when selling some assets.

Capital Gains Tax (CGT) is paid when certain assets are sold and make a profit. This may include stocks that aren’t held in an ISA, a second property, or personal possessions worth more than £6,000 (excluding cars).

For the 2022/23 tax year, the CGT exempt amount means an individual can normally make profits up to £12,300 before CGT is due.

In some cases, spreading out the disposal of assets across several tax years can help reduce CGT liability. Partners may also want to plan to maximise both of their annual exempt amounts.

If this allowance is exceeded, the rate of CGT will depend on other taxable income:

  • Standard CGT rate: 18% on residential property, 10% on other assets.
  • Higher CGT rate: 28% on residential property, 20% on other assets.

5. Pension annual allowance

2022/23 allowance: up to £40,000

A pension is a tax-efficient way to save for retirement. Using the Annual Allowance could help create financial security in later years.

The pension Annual Allowance is the maximum that can be paid into a pension each tax year while still benefitting from tax relief. This includes pension contributions made by an employer or other third parties.

In the 2022/23 tax year, the Annual Allowance is 100% of annual earnings, up to £40,000, for most people.

However, there are two reasons why an Annual Allowance may be lower:

  1. The Tapered Annual Allowance means if the threshold income is over £200,000 and adjusted income is more than £240,000, Annual Allowance will be reduced by £1 for every £2 that income exceeds these thresholds. It can be reduced by a maximum of £36,000. As a result, Annual Allowance can be as low as £4,000.
  2. A flexibly accessed pension may be subject to the Money Purchase Annual Allowance. This reduces the amount that can be tax-efficiently saved into a pension to £4,000 each tax year.

Unused pension Annual Allowance can be carried forward for up to three tax years. Unused Allowance dating back to 2019/20 can be used up until 5 April 2023.

6. Inheritance tax annual exemption

2022/23 exemption: £3,000

An estate could be liable for Inheritance Tax, the annual exemption means a gift can be passed on tax-free.

Gifting to family members early can reduce the value of an estate and, so, the eventual Inheritance Tax (IHT) bill.

However, not all gifts are immediately exempt from IHT. Some may be considered part of an estate for up to seven years. Taking advantage of gifts that are outside of an estate immediately can provide peace of mind.

Each year, the IHT annual exemption means a tax-free amount can be passed on. In 2022/23, this amount is £3,000. The limit applies per individual, so couples can gift up to £6,000 between them.

The exemption can be carried forward for one year.

7. Gifts from income

2022/23 allowance: dependent on disposable income

Making gifts from income could reduce an estate’s Inheritance Tax bill.

Gifting from income is another way to reduce a potential IHT bill. However, these gifts need to be made regularly and must:

  • Be made from income
  • Be part of normal expenditure
  • Leave sufficient income to maintain current lifestyle.

This can be a useful way to offer financial support to loved ones. For example, paying the school fees of grandchildren or make regular deposits to pay for the living costs of children.

To take advantage of this, it’s important to make sure regular gifts have continued throughout the current tax year. Records should be kept of gifts made under this exemption.

Gifts from income must be made regularly. So, missing a gift might mean that HMRC doesn’t deem the gifts “regular”, so includes them in the value of the estate when the person passes away.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

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The views and opinions contained herein are those of Benchmark. They do not necessarily represent views expressed or reflected in other Benchmark communications, strategies or funds and are subject to change. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable, but Benchmark does not warrant its completeness or accuracy. The data has been sourced by Benchmark and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. Benchmark is not responsible for the accuracy of the information contained within linked sites. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Issued by Benchmark Capital Limited, Registered Office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, England, RH12 4QP. Registered in England and Wales No 09404621

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Benchmark Capital Limited, Registered Office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, England, RH12 4QP. Registered in England and Wales No 09404621

Best Practice IFA Group Limited is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered Office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, England, RH12 4QP. Registered in England and Wales No 04490633

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