Tax Allowances Explained…

Tax Allowances Explained…

The 6th of April sees the start of the new tax year and the availability of new tax allowances.

The IFA Company’s Lucy McKinley gives us a quick guide to the allowances that could maximise your savings potential.

ISA allowance
ISAs are a great way to save efficiently because the cash and investments held within an ISA grow free from income and capital gains tax, and all withdrawals are completely tax-free. Because of the generous tax treatment available in ISAs, the amount that can be invested is limited to £20,000 each tax year. ISAs are particularly important for investors because of the recent changes to the capital gains allowance.

Capital gains allowance
This is the amount of gain an investor can receive from the sale of an investment before tax is payable on the gain. In recent years the capital gains allowance has been slashed from £12,300 to £6,000 and to just £3,000 from April 2024. So, if you hold a large amount in an investment account, you might be in for an unexpected tax bill when you sell your investments. If you hold investments outside an ISA, pension or investment bond, now is the time to check your capital gains position.

Pension allowance
The amount that an individual can save in a pension is now the lower of the individual’s annual earned income or £60,000. The advantage of pension saving – other than building a fund for the future – is that pension contributions attract tax relief. Like ISAs, investments within a pension grow free of income and capital tax, however there are limits to when a pension can be accessed and only 25% of the fund can be withdrawn tax-free.

If you want to make sure your savings are as tax-efficient as possible, get in touch with The IFA Company. We offer a free, no obligation review of your financial situation and straight forward advice on financial planning.

Call us on 01946 821150, email [email protected], visit www.ifaco.co.uk or find us on social media.