Tax Year Allowances 2024/25

The new tax year begins on 6th April. As the date approaches, it’s important to consider the new allowances available to you, while making sure to use any of your remaining allowances for the 2023/24 tax year before they’re lost. To make it easy for you, we’ve summarised the most important ones below.

 

ISAs and Junior ISAs (JISAs) 

 

ISAs and Junior ISAs (JISAs) are a key element of financial planning for our clients, their children, and grandchildren. ISAs and JISAs are tax-efficient savings accounts, so any growth, income or proceeds are tax-free!  

 

The allowances for this and next tax year are £20,000 for ISAs and £9,000 for JISAs. They can be ‘stocks and shares’ or cash and, from 2023/24 there’s no limit to the number of these you can open, provided you’re within the allowance mentioned above.  

 

There’s no opportunity to backdate any unused allowances, so if you’ve not used yours for 2023/24 you need to act fast to make sure they aren’t lost. You can make contributions to your ISAs and JISAs by adding new money, or by moving existing investments. Contact us if you’d like some help doing so. 

 

Previously, 16- and 17-year-olds qualified for both a Cash ISA and a Junior ISA, giving them a total allowance of £29,000 per tax year. However, from 2024/25, Cash ISAs will only be available for over 18s, aligning them with the Stocks and Shares ISA. But don’t worry, under 18s will still be able to benefit from the Junior ISA of £9,000. But, if you wanted to contribute a larger sum for your child or grandchildren, now is the time to do so, before the legislation changes! 

 

Pension Annual Allowance  

 

Since Auto-Enrolment was introduced in 2012, people are becoming more aware of the benefits of investing into their pensions, and the role that pensions play in retirement planning. Growth inside a pension is tax-free and any personal contributions you make will receive tax relief at your normal rate.  

 

When you come to take benefits, you can withdraw 25% tax-free (normally capped at £268,275), with the remainder subject to income tax at your normal rate.  

 

The amount you can personally contribute to a pension is the value of your pre-tax earned income up to a maximum of £60,000 gross per annum. Any contributions you make over your allowance will be subject to the Annual Allowance Tax Charge, which effectively removes the tax relief you would have received on the contributions.  

 

In addition, your employer could also contribute to your pension, and unlike personal contributions, these aren’t tested against your earnings. Employer pension contributions are paid gross and are normally treated as an allowable business expense. What this means is that they reduce the company’s taxable profit, and therefore its Corporation Tax bill. If you’re a business owner this could be beneficial to you, but bear in mind that HMRC guidance states, Employer Pension Contributions will only qualify for Corporation Tax relief if they’re judged to be “wholly and exclusively for the purposes of the trade”.
 

There are several nuances in the pension rules that could allow you to benefit even further, and this is where we can help to make sure you are making the most of your allowances. I have summarised some of the main points below, but as the detail is beyond the scope of this article, it would be beneficial for you to speak to one of our advisers about your specific circumstances if you have any questions. 

 

One example is that it’s possible to “carry forward” unused allowances from three prior tax years, so for 2023/24, you can also make use of unused allowances as far back as 2020/21 (Please Note: before 2023/24 the annual allowance was £40,000, so this is the maximum you could carry forward from these tax years). Again, the maximum contributions each year are capped at the value of your earned income.   

 

However, there are some exceptions to the Annual Allowance as follows: 

 

1. Firstly, for those earning less than £3,600 per year. In this instance, your annual allowance is capped at £3,600 gross.
    

1. Additionally, those who’ve already taken taxable benefits via a drawdown arrangement. Once you have drawn taxable benefits, you become subject to the Money Purchase Annual Allowance of £10,000 instead of the annual allowance.

   (Note: If you only took your tax-free cash, you could continue to contribute up to your full annual allowance, but you should be mindful of the ‘pension recycling rules’ which are beyond the scope of this article.)
    

1. For high earners; your annual allowance is also reduced if you earn more than £260,000 per annum. In this case you could still use the carry forward option, if it’s not yet been maximised. 

 

Additionally, the tax-free personal income tax allowance is lost at a rate of £1 for every extra £2 earned (down to zero if you earn over £125,140). By making pension contributions you could claw back your lost personal allowance, making the effective tax relief up to 60%. 

 

It is important to note that if you are over age 75 then you won’t qualify for tax relief on pension contributions; with that in mind, most providers won’t accept new contributions from customers aged 75 and over. 

 

Capital Gains Tax (CGT) Allowance – £3,000 
 

Over the past few years, the Capital Gains Tax (CGT) allowance has steadily reduced from a previous rate of £12,300. For 2023/24 it’s £6,000; set to halve to £3,000 for 2024/25. You can make capital gains up to the allowance without having a CGT liability. It’s therefore more important than ever to utilise any gains to maximise your available allowance where possible.  

 

Sales of investments held outside of tax-efficient wrappers (ISAs, pensions, investment bonds) may realise gains, as will any sales of property (except your main residence) or other assets you hold.

If you are worried about a future CGT liability, the sooner you get in touch the better. This way we can look at utilising this years allowance before the reduction as well as what we can do to reduce your liability in the future (perhaps by splitting the liability with a spouse of civil partner, or by gradually moving the assets into more tax efficient wrappers) 

 

Dividend Tax Allowance – £500 
 

The dividend tax allowance is also set to reduce in 2024/25, from £1,000 to £500 per person. It applies even if you reinvest your dividends.  

 

As with CGT, you could limit your tax liability by moving assets into alternative, more tax-efficient wrappers. You would not have to pay dividends tax on dividend produced within an ISA or a pension, however dividends produced within a pension could only be reinvested. 

 

This article is based on current legislation at the time of writing. As we saw last year, things can change very quickly, so if you’d like to discuss any of the above with us, please get in contact as soon as possible to ensure we are able to action your requests before the end of the tax year.  

 

 

 

Information and allowances accurate at time of publication. The information contained in this article is not a personal recommendation and should not be construed as advice. If you are unsure about the suitability of a particular investment strategy you should speak to an authorised financial adviser. Wise Investments Limited is authorised and regulated by the Financial Conduct Authority, reference number 230553. Registered in England 4970458.