Do you need to review your personal finances before 5 April 2024?

Published by Kim Williams on 6 February 2024

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Do you need to review your personal finances before the tax year end on 5 April 2024? If so, I have detailed the key areas you may want to review here.

ISA allowance

The maximum amount which can be added to an ISA in the tax year 2023/24 is £20,000.  Both spouses are entitled to their own allowance, but an unused ISA allowance cannot be carried forward. So, if you do not use your ISA allowance by 5 April 2024 you will lose the opportunity to do so.

Capital gains tax (CGT)

It is important to note that the sale of investment funds can be chargeable to CGT. Each individual has a CGT allowance of £6,000 (2023/24 tax year). If you make other chargeable gains in the year, any gains in your investment portfolio will be added to the other gains made, and the cumulative result could give rise to a charge. If you make a capital loss, this must be first set against gains in the same tax year but any excess loss may be carried forward indefinitely and offset against future gains.

The recent Budget announced that the CGT allowance is reducing to £3,000 from 6th April 2024.  Given this reduction it is important to review your finances and ensure that the higher allowance of £6,000 is used prior to 5th April 2024, where possible.  Advice relating to the forward planning to make use of this allowance, in view of raising funds for your 2024/25 ISA, should be sought.

Inheritance tax

On death, each individual has an IHT nil rate band of £325,000 and this is the amount that can be passed on to beneficiaries before a tax charge is due. Any excess is taxed at 40%.

Additionally, there is the Residence nil rate band which allows a further £175,000 (2023/24) to be left to beneficiaries providing certain key requirements are met.

Certain gifts can be made each tax year which will reduce the value of an estate for the purposes of IHT. The annual exemption is £3,000, and if this is not fully used in one year then the balance can be carried forward to the next (total up to £6,000). In addition, gifts up to £5,000 can be made by parents on the marriage of children and £2,500 by grandparents. Any number of gifts of £250 can be made without attracting tax.

Potentially Exempt Transfers (PETs) apply to outright gifts of an unlimited value. These are exempt from inheritance tax after a seven year period has passed and the donor is still living.

Pension contributions

Generally, the maximum pension contribution, on which tax relief can be claimed in a tax year, is £60,000 gross – this includes personal, employer and third-party contributions. This limit can reduce if your income, from all sources, is more than £200,000 in the same tax year.

If you have received pension income from a flexi-access drawdown arrangement, then this limit reduces to £10,000.In order to qualify for tax relief, the maximum personal contribution must not exceed 100% of pensionable earnings, though employer contributions can exceed “cash” salaries subject to wholly & exclusively rules which means the limit may be higher.

If you do not have any earned income, and you are under age 75, you are able to add £3,600 (gross equivalent) to a pension plan and receive basic income tax relief at source.

Pension relief carry forward

Provided that the current year’s annual allowance for pension contributions has been fully used, you are able to make use of any unused allowance from up to the three previous years. The oldest unused relief must be used first. To qualify you must have held a pension plan in the years from which you are looking to carry forward unused relief.

Pension lifetime allowance

The 2023 Spring Budget abolished the lifetime allowance which is the maximum value you can save into a pension before any tax on the excess is due.

For the 2023/24 any pension benefits remain to be tested against the lifetime allowance (standard allowance is £1,073,100) but with a zero tax charge, if due.

From 6th April 2024, the rules are changing again where the tax free monies you have received from your pension are tested.  Broadly speaking, an individual (without any HMRC protection) can receive 25% of their pension fund tax free up to a maximum amount of £268,275.

Defined benefit or final salary pensions are included as part of this calculation, as well as any pensions in payment. We would recommend you seek financial advice in this respect.

Given these changes to pension rules it is important to review your retirement plans as soon as possible to see if the new rules have any impact on your financial position.

Child benefit

The value of child benefit begins to reduce when the income of the recipient or their partner exceeds £50,000 a year and is completely withdrawn when income reaches £60,000. The value of your income can be reduced by the amount of any pension contribution which may help towards child benefit being recovered.

Personal allowance

Most people are able to have an income of £12,570 in the current tax year before income tax is payable. If your taxable income exceeds £100,000 the personal allowance is reduced by £1 for every £2 of income over £100,000 which means that your personal allowance is lost with income over £125,140.

Income £125,140 attracts income tax of 45%.  This was reduced from £150,000.

Again, making a pension contribution could help reduce income tax for this purpose.

Banking interest rates

Given the rises in interest rates we are seeing more of our clients paying tax on their savings interest.  Bank interest is paid gross and the liability falls on the individual to declare any taxes due to HMRC.  It is important to review your income for 2023/24, and the bank interest received; this could mean that you pay more tax in the current tax year or move your income tax bracket from basic rate to higher rate taxes.

If you would like to discuss the upcoming tax year end and opportunities available to you, please contact Financial Planner, Kim Williams on +44 (0)330 124 1399 or complete our online enquiry form.  

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Kreston Reeves Financial Planning Limited, Independent Financial Planners. Authorised and regulated by the Financial Conduct Authority.

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