Essential Guide to Tax Year End: Your Top 5 Questions Answered
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Essential Guide to Tax Year End: Your Top 5 Questions Answered
As the end of the tax year approaches, it’s essential to understand key financial considerations to make the most of available opportunities and ensure compliance with tax regulations. Here are answers to some of the most frequently asked questions regarding tax year end in the UK:
1. How much can I pay into a pension?
The annual allowance for pension contributions determines how much you can pay into a pension each tax year and receive tax relief. For the tax year 2023/2024 (and 2024/2025), the standard annual allowance is £60,000, although it may be lower for high earners.
Additionally, you can carry forward any unused annual allowance from the previous three tax years which can increase your allowance in a particular tax year.
2. How much can I pay into an ISA?
Individual Savings Accounts (ISAs) offer a tax-efficient way to save and invest money. For the tax year 2023/2024 (and 2024/2025), the ISA allowance remains at £20,000 annum. This allowance can be split between different types of ISAs, including cash ISAs, stocks and shares ISAs, innovative finance ISAs, and lifetime ISAs, allowing you to tailor your savings strategy to your financial goals and risk tolerance. Following the budget in March 2024, the government are to open a ‘British ISA’ with an additional £5000 per annum allowance for investment in British business. More details about when and how this looks are to come.
3. Do I have to pay tax on my savings?
The amount of tax you pay on savings depends on your total income and the type of savings accounts you hold. In the UK, most individuals are entitled to a tax-free Personal Savings Allowance (PSA), which determines how much interest you can earn before paying tax. For the tax year 2023/2024, the PSA is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers do not receive a PSA. This makes using an ISA even more important, particularly given interest rates have increased over the past 2 years.
4.What will the Child Benefit Threshold be for 2024?
The Child Benefit Threshold determines whether you’re eligible to receive child benefit payments and is based on your income. For the tax year 2023/2024, the threshold is £50,000. If your income exceeds this threshold, you may be subject to the High Income Child Benefit Charge (HICBC), which reduces your child benefit entitlement by £1 for every £2 your income exceeds £50,000. From April 2024, the threshold income is £60,000 and you can have a threshold income of up to £80,000 before no longer receiving child benefit.
5. How can I reduce my tax?
There are various tax planning strategies you can implement to reduce your tax liability. One of the biggest ways to reduce tax is maximising your pension contributions will give tax relief, therefore reducing your tax liability. ISAs can allow for investment or savings growth to be free from tax, and with no tax to pay on withdrawals. Other considerations are using the marriage allowance or charitable donations.
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