WHY WAIT UNTIL TOMORROW WHEN YOU CAN START TODAY?
Take advantage of your annual allowances earlier in the tax year to give your savings and investments more time to grow
Pensions and retirement
A pension has always been one of the most tax-efficient ways to save for retirement. Following the Chancellor’s recent announcements, you can now contribute more each year into your pension, and you’re no longer limited by any lifetime allowance on the total amount.
Higher annual allowance
From 6 April 2023, you may be able to contribute up to £60,000 into your pension pot. Tax relief on contributions means any personal payments will immediately receive a 20% boost to your pension savings (regardless of your income). Higher or additional rate taxpayers can take advantage of additional tax relief of 20% or 25% respectively through their self-assessment tax returns. No tax is paid on the growth of pension funds, so investing these early on in the tax year can provide greater returns than putting it off until later.
Unlimited lifetime allowance
There’s now no lifetime allowance tax charge on pension savings. Previously, it was set at just over a million pounds, after which you would pay a tax penalty. The change presents an opportunity to grow your pension pot without restriction. It could also have an impact on other decisions. For instance, you could consider working for longer because you’ll be able to continue building up your retirement savings without the threat of tax penalties.
Pensions can be complex, so please speak to an investment manager or financial planner if you’re thinking about paying more into your pension now the lifetime allowance has been abolished.
Capital gains
Changes to capital gains tax (CGT) from 6 April 2023 include the annual tax-exempt allowance dropping from £12,300 to £6,000. This reduction means it’s more important than ever to use your ISA allowance as they are exempt from CGT. It is also essential to consider how CGT affects your assets because exemptions and thresholds can make a substantial difference. Speak to an investment manager or financial planner about taking advantage of your annual CGT allowance and protecting your assets using tax-efficient wrappers.
Annual Gift Allowances
A cash gift is a great way to use your tax-free allowances and exemptions, which could reduce your estate’s inheritance tax (IHT) liability. They include the following:
A gift of up to £3,000 to one person or split between several people (and you can carry over last year’s allowance if you didn’t use it)
As many gifts of up to £250 per person as you want as long as you haven’t used another allowance on the same person
Gifts for weddings or civil partnerships of £5,000 to a child, £2,500 to a grandchild or great-grandchild and £1,000 to any other person.
Junior pensions are another great way to transfer wealth to younger members of your family tax efficiently. They have to be set up by a parent or guardian, but anyone can contribute. You can pay up to £2,880 in each tax year into a pension on behalf of a child and the government automatically tops this up with 20% tax relief on the total amount contributed. The fund will transfer to them when they turn 18 but they won’t be able to access the money until they reach retirement age.
IHT rules are complex, so it could be helpful to speak to an investment manager or financial planner about your circumstances and what you’d like to achieve. They’ll be able to help you strike a balance between transferring your wealth to loved ones during your lifetime, while also making sure you’re financially secure for many years to come.