While April is often a crunch time in the UK rugby calendar, it is also hugely significant for your finances.
5 April 2024 will be the final day of the 2023/24 tax year, and 6 April marks the start of a brand-new financial year in the UK.
Some important tax allowances and exemptions will reset at this stage, meaning you may want to take the opportunity now to make your wealth as tax-efficient as possible before 6 April.
So, alongside preparing for some hugely important matches at the end of the season, read on to discover four key tax allowances and exemptions that you might want to make use of before the tax year ends.
1. Pension Annual Allowance
Your pension is a highly tax-efficient way for you to save for your future. Your money is invested to hopefully generate growth over time, and any gains are free from Capital Gains Tax (CGT).
You will generally also receive tax relief on your contributions. Basic-rate tax relief is usually applied automatically, essentially meaning that a £1,000 pension contribution only “costs” £800.
As you may well be a higher- or additional-rate taxpayer, you can also claim tax relief on top of the standard basic rate at your marginal rate of Income Tax.
Crucially, there is a limit on how much you can tax-efficiently contribute to your pension each year, known as the “pension Annual Allowance”. In 2023/24, this stands at the lower of £60,000 or 100% of your earnings (or £3,600 if you have no earnings). Bear in mind that if you have a particularly high income or have already flexibly accessed your pension, your Annual Allowance may be reduced.
So, if you have not made full use of your Annual Allowance yet, you might want to consider making pension contributions before the end of the tax year.
You can carry forward unused Annual Allowance from the previous three tax years. So, if you do not use your entire Annual Allowance ahead of 6 April 2024, you may be able to do so in the new tax year.
Bear in mind that to use carry forward, you must have:
- Been a member of a pension scheme for the previous three years
- Not triggered the Money Purchase Annual Allowance (MPAA) by flexibly accessing your pension in certain circumstances
- Sufficient relevant earnings in the period the contribution is made.
These calculations can be complex, so it is often wise to speak to a professional first.
2. ISA allowance
ISAs are a form of tax-efficient saving or investment account. You can save money using a Cash ISA or invest it through a Stocks and Shares ISA, and any interest or investment returns generated are free from Income Tax and CGT. There are also other types of ISA that you may be able to use, subject to certain conditions.
Each tax year, you can contribute up to the ISA allowance into these accounts. This threshold stands at £20,000 in 2023/24.
The ISA allowance is the total you can contribute in a single tax year across all ISA accounts. So, for example, if you have contributed £5,000 to a Cash ISA, £5,000 to a Stocks and Shares ISA, and made no other contributions this tax year, you have £10,000 of your allowance left to use.
The ISA allowance resets at the start of the next tax year, and you will lose whatever you do not make use of.
So, if you would like to tax-efficiently save or invest your wealth for life after your playing career, you may want to make the most of your ISA allowance before 6 April.
Each individual has an ISA allowance. As a result, your spouse or civil partner can also save and invest in these accounts, essentially doubling your joint allowance to up to £40,000.
3. Capital Gains Tax Annual Exempt Amount
Certain assets, such as second properties, art and jewellery, or investments held outside of an ISA may be subject to CGT. You can read our previous article to understand exactly how CGT works, including when it is charged and the rate of tax.
Before you have to pay CGT on eligible assets, you have an Annual Exempt Amount for tax-free gains in a single financial year. In 2023/24, this stands at £6,000.
That means you can generate up to £6,000 in gains from assets that may be subject to CGT without facing a tax charge. As a result, if you have purchases that you know you may want to make this year, such as buying a home, paying for a holiday, or even retiring from playing professional rugby, you may want to make the most of this tax-free exemption.
That way, you can access the value tied up in certain assets to cover these costs without facing a tax charge.
As with ISAs, this exemption also counts for individuals. So, if your spouse or partner holds assets in their name, they could also liquidate gains up to the exemption threshold. This essentially doubles your exemption to £12,000.
The CGT Annual Exempt Amount is set to halve to £3,000 on 6 April 2024, meaning next tax year you will not be able to liquidate as much in tax-free gains. Consequently, you may want to make the most of your exemption this year while it is still higher.
4. Dividend Allowance
Any dividends you receive, whether from non-ISA investments or any business interests you have, are potentially subject to Dividend Tax.
However, before this is charged, you can earn tax-free dividends up to the Dividend Allowance. This stands at £1,000 in 2023/24. Much like the CGT Annual Exempt Amount, the Dividend Allowance will halve from 6 April 2024, falling to £500.
While you typically cannot decide when you will receive dividend income from your investments, you may have some control over dividends from certain business endeavours.
For example, you may want to consider drawing dividends from an image rights company if you have one, or any other business interest you have. As the Dividend Allowance is held individually like other allowances and exemptions, you could also pay a spouse or partner dividends to essentially double your joint tax-free allowance.
Although up to £2,000 in tax-free dividends between you and your partner is not a significant sum in the grand scheme, it could be sensible to make the most of it and access this value without facing a tax charge, especially with the allowance set to fall from 6 April.
Get in touch
If you are a rugby player and would like to find out more about making your money as tax-efficient as possible, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The Financial Conduct Authority does not regulate tax planning.
