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Taxation Tax relief
8 April 2023
Author: Punter Southall Aspire

How to make the most of the 2022-23 tax year

Every tax year (6th April - 5th April) offers a fresh opportunity to put more money back into your own pocket, but many people miss out on valuable allowances, often leaving things until they’re too late.

Although next April may seem far away, getting ahead with your tax allowances could do wonders for your financial plan. This might include boosting your future retirement lifestyle, or improving your income from investments now - taking strain off your finances during the current cost of living crisis.

Here, we take a look at some of the allowances you may want to consider, but for more info on how you may be affected you should contact your financial adviser.


Pension annual allowance

A pension is a great tool to boost the growth of your retirement fund. Not only is all investment growth tax-free, but your contributions get a “boost” from the government via tax relief. This is equivalent to your highest marginal rate of income tax. So, a Basic Rate taxpayer gets 20% tax relief and a Higher Rate taxpayer gets 40%.

Think of it like this. It only “costs” a Higher Rate taxpayer 60p to put £1 into their pension. This is equivalent to a 40% return on your investment before your contribution even experiences any compound interest. You can put up to £40,000 into your pension(s) each tax year or up to 100% of your income (if this is lower). Here, you have a bit of flexibility since you can use the “carry forward” rule to access any unused allowance from the previous three tax years

Most people contribute to their pension via their salary. It can be hard to put a large lump sum into your pension unless you come across a large windfall (e.g. from an inheritance). Make sure, therefore, that you continue to contribute to your pension each month to get the best from your annual allowance. It might be tempting to lower or stop these during hard economic times, but you should seek professional advice before doing so.


ISA allowance

Many people know that you can put up to £20,000 into your ISA(s) and receive interest, capital gains and dividends without tax. However, too many people don’t use their ISAs efficiently. A common mistake is holding cash in an ISA instead of investments.

In 2022, interest rates offered by ISAs are rarely better than those offered by regular savings accounts. By putting too much cash in an ISA, you could be taking up some of your £20,000 allowance which might otherwise be dedicated to investments. [i]

Also, consider how your ISA can be used to best achieve your investment goals. Those in their 50s who want to retire early, for instance, might want to focus on drawing income from a Stocks & Shares ISA (e.g. dividends) before accessing pension funds. This is partly because the latter can be passed down eventually to beneficiaries without inheritance tax (IHT), but ISAs normally can’t. However, a young person looking to save for a first property deposit may benefit more from contributing to a Lifetime ISA. Here, you can contribute up to £4,000 per tax year and the government will add 25% (up to £1,000).


 Read our March 2023 Budget update:

Part 1

Part 2



Tax allowances

Not all investments can - or should - be put straight into an ISA to achieve tax efficiency. Each year, you are also granted a range of tax-free allowances which sit outside of your ISA and pension. These include a dividend allowance (£2,000), a personal savings allowance (up to £1,000 tax-free interest, or £500 for those on the Higher Rate) and a capital gains allowance (£12,300). By using these strategically alongside your ISA you can maximise your after-tax (“real”) returns and put more money back in your pocket.

For instance, suppose you have two medium-term investment goals: to grow a fund for a future property purchase (before retirement), and to generate an income from other investments along the way (i.e. mainly from dividends). Depending on how much you want to contribute towards each portfolio, your dividend investments might sit best within an ISA. This is because the tax you pay on dividends as a Higher Rate taxpayer (33.75%) is greater than the tax you pay on capital gains from non-residential property (20%).

If you have any of your £20,000 ISA allowance left over, then you could put some of the money for your first investment goal into a Stocks & Shares ISA (geared towards investment growth). Anything left over could be put into a General Investment Account (GIA), where you can achieve tax-free capital gains up to £12,300 within that tax year.


Work with a trusted adviser

The previous example starts to show how using your yearly tax-free allowances can help to save money. Yet it also highlights some of the complexity involved with tax planning. After all, how should you best combine your allowances for taxes, your ISA and your pension? Your unique financial goals and needs might require a different approach.

 It can help tremendously when you use the assistance of a chartered financial planning firm to help you navigate the UK’s complex tax landscape effectively. It’s easy to make costly mistakes on your own which you may regret later. Make sure you have the best available information available to you so you can move confidently towards your goals.

Contact your financial planner to discuss how to make best use of your tax allowances.


[i] As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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