Navigating tax year end: 10 Dodl-approved checks
Ace the end of the tax year by making these checks before April 5
As the curtain falls on the current tax year, marked by the April 5 deadline, it's time to get proactive. April 6 signals the reset button for claiming certain allowances and tax breaks, so it’s crucial to make the most of your opportunities. Have a read of our 10-point tax year end checklist, designed to help you set yourself up to be in top financial shape.
Check 1: turbocharge your ISA!
With a £20,000 ISA allowance per tax year, don't miss the chance to optimise it before the April 6 reset. While reaching the full 20k might be a stretch, there are different ISAs available to match your longer-term savings goals. A Lifetime ISA has a lower, £4,000 annual limit and can help you invest towards your first home. Just remember this is included in the overall 20k allowance, so if you're lucky enough to max out your Lifetime ISA, you'll be left with a maximum of £16,000 to put into your investment ISA.
If spare cash is waiting to be invested, act now – the tax year end is your cue to take advantage of your full allowance, or as much of it as possible!
Check 2: pondering your pension?
Pensions have their limits too, and with a cap of £60,000 a year for most people, or 100% of your earnings (whichever is lower), it's wise to check out how much you can pay in. Again, not everyone maxes out this limit, but topping up before the deadline ensures you've made the most of this year's allowance. Even if you haven’t had any earnings this year, injecting £2,880 into your pension will blossom into £3,600 with the government's top-up. Seize the opportunity to boost your pension pot!
Check 3: high earners alert!
Navigating the intricate tax system can be tricky, especially with the £100,000 earnings threshold, which is the point at which the tax-free income allowance gradually decreases until it is completely phased out for those with high income. So if you’re lucky enough for your income, including bonuses, commission, and investment returns, to top this limit, brace yourself for a higher tax rate. But there is some good news – making pension contributions can bring your earnings under the threshold, providing a strategic tax-saving move.
Check 4: unlock the marriage allowance!
For those with low income, working part-time or taking a career break, the marriage allowance can be a game-changer. If you earn less than the tax-free personal allowance (£12,570 a year), and your partner is a basic-rate taxpayer, you can transfer up to £1,260 of your unused tax-free allowance to them. It's a financial win-win for couples and could save you up to £252 a year!
Check 5: child benefit and earnings
Parents claiming child benefit should be mindful of their earnings tipping over £60,000. As earnings rise, child benefit decreases on a sliding scale. To secure the full benefit, consider using the little hack we just mentioned and make pension contributions to keep earnings below the £60,000 threshold, ensuring your child benefit remains untouched.
Check 6: Tackling tax on savings
Most people can earn some interest on their savings before they have to pay tax, which is called the Personal Savings Allowance. With the Personal Savings Allowance granting tax-free interest up to £1,000 (£500 for higher rate taxpayers), savvy savers need to watch their interest earnings. It’s much easier to hit the limit these days and if you have already, there’s not much you can do this year. But next tax year, consider sheltering your cash in an ISA, weighing the benefits against potential tax. It's a calculator-worthy decision!
Check 7: kiddie savings and the taxman
Another fun, little quirk of the tax system is that if your children have savings accounts and they earn more than £100 in interest a year, that will be viewed as though it’s your own income, which means it could be taxed (if you’ve already gone over your Personal Savings Allowance – or if it tips you over it). ISAs again come to the rescue, shielding interest from the taxman. Evaluate whether the tax hit is worth it or if a Junior ISA is a smarter move for your little ones. At Dodl we don’t offer a Junior ISA, but our friends at AJ Bell can help you out with that.
Check 8: cash in your gains – strategically!
Investments outside ISAs or pensions can attract capital gains tax if they've grown in value. The good news is everyone gets a £3,000 tax-free allowance each tax year, which gives you a chance to make a strategy with tax paid on any profits. If you’re sitting on big gains, it might be better to sell the investment and realise them this tax year. You can just sell enough to meet your tax-free limit, so you use it this year (because it’s another use it or lose it allowance). If you need any help on how selling investments works, we’ve got you covered.
A nifty way around it is to sell the share or fund and repurchase within your ISA. This mean you can keep the same investment but protect any future gains and income from the taxman.
Check 9: Side hustle and the tax-free zone
Exploring side hustles? Keep the first £1,000 earned tax-free with the 'trading allowance.' This means everyone has a limit of £1,000 they can earn from something that’s not their main job before they have to pay tax on the money. From Etsy businesses to weekend gigs, your extra income can remain a tax-free delight – but check the government's advice to sure you’re playing by the rules.
Check 10: divide and conquer!
For couples, sharing assets can unlock benefits. For example, perhaps you maxed out your lifetime ISA allowance. Fear not! You could transfer some funds to your partner as a gift and tap into their allowance (assuming they're lifetime ISA eligible). The same principle applies to their capital gains tax allowance—shift investments their way, and you keep some more to yourselves.
Transferring to a spouse (be it a husband, wife, or civil partner) usually incurs no tax. But hold the applause for a moment. Moving money means sharing, and while love knows no bounds, financial boundaries are a different story. It boils down to how you, as a couple, communicate and navigate the realm of shared finances.
🔔 Always remember, the value of your investments can go down as well as up. Dodl doesn’t give advice, so if you’re unsure about investing, it’s always best to speak to a financial adviser.