If you missed the chance to make the most of the opportunities to save tax prior to the tax year ending on 5 April, the new tax year provides a fresh opportunity to make the most of the various allowances and exemptions. Our Tax Manager Diane Aldridge shares a few of the simple, yet effective, opportunities you should keep in mind for 2022/23.
1. Use the tax-free personal allowances open to you
You may be aware that each year you are entitled to a tax-free personal allowance of £12,570 (this is the figure for 2022/23). Keep this figure in mind as you generate income and bear in mind that multiple allowances can be used if income can be divided between family members e.g. between spouses.
2. Make use of the additional opportunities to generate tax-free income
There are also other allowances and exemptions which mean that further income can be generated tax-free, under the right conditions. These include the following:
- A homeowner can let out part of their family home to a lodger. As long as there is shared occupation, up to £7,500 can be received completely free of tax
- Investment income is also very efficient at lower levels. Up to £6,000 of savings interest can be received tax-free in the right circumstances
- For shareholders, there is a £2,000 0% starting rate for dividends
3. Use your personal ISA allowance
The personal ISA allowance is another key investment allowance. You can invest up to £20,000 in ISAs and any income or Capital Gains Tax from the investment will be tax-free.
The earlier in the year you make use of this allowance, the more you will watch your investment grow.
4. Use your pension allowance
Pension contributions of up to £40,000 can also be made each year, on a tax-free basis.
5. Use your Capital Gains Tax allowance
It’s not just income that enjoys a tax-free allowance. You can make capital gains on disposals of assets of up to £12,300 before needing to pay anything.
In most cases, these allowances will not roll over to the next tax year, so make sure you use them and don’t lose them. Planning early makes sure you benefit from the maximum possible tax efficiency.
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