For many people, the beginning of the new year represents a fresh start, the chance to take stock of your life and make a few changes for the better. You may have signed up for gym membership or made it all the way through dry January, but with the end of the financial tax years fast approaching, have you made the most of your end of year tax allowances?

The new financial year starts on 6 April. It’s the perfect opportunity for you to review your finances and get smart with your money, making full use of any available tax allowances before 5 April.

Capital gains tax (CGT)

Everyone should have a capital gains tax allowance of £12,300 in the current tax year, which ends on 5 April 2022. And if you’re married or in a civil partnership, the couple’s allowance is £24,600. This is the amount of profit you can make from selling an asset without paying tax.

If your assets are owned jointly, you can use both of your allowances, which will effectively double the amount you can make before CGT is due. If you’re married or in a civil partnership, you can transfer assets to each other to reduce your overall tax.

This is a ‘use it or lose it’ allowance, which means you can’t carry it forward to the following year. That’s why it’s important to review your capital gains and losses made during the year, to identify any allowances you still need to fully utilise.

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Tax-free ISA contributions

ISAs are a tax-efficient way of investing. In the 2021/22 tax year, Stocks & Shares ISAs and Cash ISAs have a maximum contribution of £20,000. A Lifetime ISA, designed to help first-time buyers save a deposit, has a maximum contribution of £4,000 per year. You pay no Income Tax on the interest or dividends received, and all profits are free from CGT.

Tax-efficient investing in ISAs is another allowance that’s lost if not fully used during the tax year.

Pension planning

A pension is a very tax-efficient way of saving for retirement because of the tax relief you earn. The annual pension contribution limit for most people is currently £40,000 – this means you receive tax relief on the contributions up to this amount. However, if your income exceeds £240,000, your annual tax relief allowance will be reduced, with the minimum contribution limit being £4,000.

You can carry forward any unused relief from the three previous tax years.

If you’ve remarried, any children from a previous marriage may be disinherited

Landlord changes

Those of you with rental properties should know that you can no longer deduct mortgage expenses from your rental income. Instead, you’ll receive a tax credit based on 20% of your mortgage interest payments.

If you’re selling a Buy to Let property, you’ll generally need to pay CGT on any profits at a rate of between 18% and 28%, depending on your tax bracket. In previous years CGT was payable within 30-days – this has been extended to 60-days. You can also deduct costs such as solicitor’s fees from the taxable value.

Gifting in your lifetime

Gifting money to your family or friends during your lifetime can be a way to reduce the amount of inheritance tax due on your estate when you pass away.

Some gifts are exempt from tax, including gifts to your spouse or civil partner, or to a charity. But if you gift money to an individual other than your spouse, it may be included in your estate for inheritance tax if you were to die within seven years of making the gift.

Individuals have an annual gift allowance of £3,000. You can carry any unused allowance forward from the previous year (so if you didn’t use this allowance the year before, you could give away a total of £6,000). If in a couple, you can give away £6,000, and potentially £12,000 if the previous year’s allowance has not been used.

In summary

This article has just touched on a number of ways you can make the most of your tax allowances. HM Revenue & Customs (HMRC) rules when it comes to tax are complex and can change at short notice, and you should consult a financial planner who will be able to advise on your individual position. But with the end of the tax year just a few weeks away, it’s important to do this sooner rather than later so you don’t miss out.

There have been significant changes to pension savings in the Spring Budget 2023 that may impact your retirement planning. To find out more, see: How does the 2023 Budget affect your pension and retirement planning?

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