With the cost of living crisis most of us have reduced our spending to try to enable more disposable income but we should not just look at the money we are spending, it is also about the tax we are paying. With the end of the tax year approaching these are some of the considerations:
Have you utilised your Personal Allowance? This is the amount of money you’re allowed to earn each tax year before you start paying Income Tax: for the tax year ending 5 April 2023 this is £12,570. If you’re married or in a civil partnership it may be possible to transfer part of your allowance to your spouse or civil partner. You may also be able to take a payment from a pension to use unused allowance tax efficiently.
If you are under the age of 75 years old you can pay 100% of your earnings into a Pension and receive tax relief, although please note that if you contribute more than £40,000 this may be subject to an annual allowance charge. Even if you earn £3,600 or less a year or you don’t earn anything at all – you can still make a contribution of £2,880 and get tax relief at source added to your pension contributions, making your contribution £3,600.
The ISA allowance is also a consideration and offers generous tax breaks. If you’re over 18 and a UK resident, you can pay up to £20,000 into an ISA each tax year.
Pension contributions are also valuable considerations if you earn just over £50,000 and are entitled to child benefit, by making a Pension contribution you may be able to increase the amount of child benefit you receive. This could be the same for someone earning just over £100,000 – by making a Pension contribution you could increase the amount of Personal Allowance you are entitled to.
This is a very busy time for a financial adviser, we offer a free without obligation consultation so if you would like to enquire what tax considerations may be available to you, pick up the phone today.
The content included on this page is based on our understanding of the UK tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances.