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The 2022/23 end of tax year guide

7 allowances to make use of before 5 April 2023

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Read full reportA guide to tax year end 2022/23
16 pages

The 2022/23 tax year ends on Wednesday 5 April.

After this date, many allowances will reset, so it could be your last chance to use some of them. Making the most of allowances can reduce your tax liability and help your money to go further.

Reviewing your finances now could mean you discover an allowance you could make use of before the deadline.

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 your Marriage Allowance could reduce your 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 you can receive before Income Tax is due. For the 2022/23 tax year, it is £12,570.

If you or your partner 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 you 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.

You can backdate the Marriage Allowance for up to four years. So, you have until 5 April 2023 to use your 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 you earn on money held in an ISA are free of both Income and Capital Gains Tax (CGT). For the current tax year, you can add up to £20,000 to an ISA.

You can spread your annual allowance across several different ISA types.

For adults, there are five different types of ISA that you can contribute to:

  1. Cash ISA: A Cash ISA operates similarly to a savings account, but the interest you earn is paid free of Income Tax and CGT. Some Cash ISAs are subject to restrictions, such as how much you can withdraw.
  2. Stocks and Shares ISA: Using a Stocks and Shares ISA allows you to invest in the stock markets and other assets. Returns are free of Income Tax and CGT. As with all investments, you should have a long-term outlook and understand your risk profile when using a Stocks and Shares ISA.
  3. Lifetime ISA (LISA): If you’re aged between 18 and 39, you can open a LISA. A LISA can be a Cash or Stocks and Shares ISA. You will receive a 25% government bonus on your contributions. However, you will be penalised if you make a withdrawal before you turn 60 for any purpose other than buying your first home. The maximum amount you can place 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 you can no longer open a Help to Buy ISA, if you already have one, you can continue to contribute until November 2029. You can add up to £200 a month and the government will top up your savings by 25% (up to £3,000) when you buy your first home.

3. Dividend allowance

2022/23 allowance: £2,000

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

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

You may also receive dividends if you own your 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, if you’re a company director, you can pay yourself up to £2,000 in dividends from the business without paying any Dividend Tax.

How much tax you pay on dividends that exceed the allowance will depend on your 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 your Capital Gains Tax annual exempt amount could save you money when you sell some assets.

Capital Gains Tax (CGT) is paid when you sell certain assets 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 your car).

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 your CGT liability. You may also want to plan with your partner to maximise both of your annual exempt amounts.

If you exceed this allowance, your 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.

If you’re not sure if your assets could be liable for CGT or the tax rate you’d pay, please contact us.

5. Pension annual allowance

2022/23 allowance: up to £40,000

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

The pension Annual Allowance is the maximumthat you can pay into your pension each tax year while still benefitting from tax relief. This includes pension contributions made by your employer or other third parties.

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

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

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

It’s important to know what your Annual Allowance is, so please contact us if you’re unsure or have any questions.

Unused pension Annual Allowance can be carried forward for up to three tax years. You have until 5 April 2023 to make full use of your allowance from the 2019/20 tax year.

Please note: The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Past performance is not a guide to future performance and should not be relied upon.

6. Inheritance tax annual exemption

2022/23 exemption: £3,000

If your estate could be liable for Inheritance Tax, the annual exemption means you can pass on a gift tax-free.

If you’re concerned about Inheritance Tax (IHT), gifting to loved ones now can reduce the value of your estate and, so, the eventual bill.

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

Each year, your IHT annual exemption means you can pass on a tax-free amount. 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 your income

2022/23 allowance: dependent on your disposable income

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

If Inheritance Tax (IHT) is a concern, gifting from your income is another way to reduce a potential bill. However, these gifts need to be made regularly and must:

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

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

If you want to take advantage of this, it’s important to make sure your regular gifts have continued throughout the current tax year. You should also keep a careful record of gifts made under this exemption.

Gifts from your 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 your estate when you pass away.

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

Read full reportA guide to tax year end 2022/23
16 pages

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Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which 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, RH12 4QP. Registered in England and Wales No 07572431.

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