A new tax year is underway, with 6th April marking the beginning of the 2023/24 tax year. What does this mean for you? Primarily, a new year means new opportunities, with ISA and Pension allowances reset and some big changes coming from the recent Spring Budget .
Although this new tax year will run to midnight on 5th April 2024, you may not want to hold off on getting started utilising your tax free annual allowances.
Use up your Pension allowance.
Your Pension is a great way to build wealth towards your future retirement goal, and investing early means more time to potentially grow your money.
With your Pension, there is no limit on how much you can invest into it within the tax year, but there is a limit on how much tax relief you can claim each year on your contributions. Tax relief can typically be claimed on up to 100% of your earnings or £60,000 in the 2023/24 tax year, whichever is lower.
This is a significant change from the recent Budget, as previously in the 2022/23 tax year the annual allowance had been set at a maximum of £40,000 for most people.
If you can fill up your Pension allowance on day one of the new tax year, you’ll benefit from more time in the market. Of course, many of us aren’t in a position to fill an allowance on day one, so perhaps set yourself the goal of using as much as you can before 5th April 2024.
It’s important to note that investing in a Pension means you can’t typically access your money until age 55, proposed to increase to age 57 in 2028. If you’re not sure how much to invest or whether a Pension is suitable for your goals, speak to a financial adviser about your circumstances.
As with all investing, your capital is at risk and you could get back less than you initially invest.
Use up your ISA allowance.
Just like your Pension, you’ll be starting the new tax year with a fresh allowance for your ISA. This will be an allowance of £20,000 in the 2023/24 tax year. With an ISA, you won’t pay any Income or Capital Gains Tax on the returns your ISA generates or the increase in value.
Inflation is an important point when considering what type of ISA to invest in. Cash ISAs are tied to interest rates, which are still currently lower than inflation. This may mean that your Cash ISA could be losing its purchasing power in real terms over the long term and therefore may be better suited to short term goals, typically considered as less than 5 years. 1
If investing for a long term goal, typically considered to be 5 years or more, Stocks & Shares ISAs may make more sense as the funds have the potential to outpace inflation over the long term. However as the performance of stocks and shares can go down as well as up, an investor has to be comfortable with taking some risk when aiming to grow their money through growth in a Stocks & Shares ISA.
If you can’t invest the full allowance, consider setting up a regular direct debit into an ISA, enabling you to chip away at your allowance over the course of the tax year – investing what you can afford from your disposable income.
You can also invest at any time with impulseSave® within the True Potential app. Even small amounts can make a difference, something is better than nothing when it comes to growing your wealth over the long term.
What’s new in this tax year?
The key changes for this tax year relate to your Pension. As mentioned, the annual tax-free allowance is increasing from £40,000 to £60,000 from 6th April 2023.
The other significant change is that the Lifetime Allowance is to be abolished – from April 2023 onwards there will be no penalty for exceeding the Lifetime Allowance, but any excess taken as a lump sum will be taxed at the individual’s marginal rate instead of the Lifetime Allowance excess charge rate of 55%. The Lifetime Allowance will be abolished entirely from April 2024.
The Lifetime Allowance is currently set at £1,073,100, however it’s important to note that even when the Lifetime Allowance is abolished, the entitlement to tax free cash will be frozen at the lower of 25% of your pension fund or £268,275. In some cases it is possible to have Pension protection in place enabling you to access a higher amount of tax free cash. Speak to a financial adviser if you are in doubt around your own circumstances.
Another big change for Pensions is with the Money Purchase Annual Allowance, up from £4,000 to £10,000. This is the amount you can put into your Pension once you’ve already flexibly accessed your pension. This is further good news for investors looking to do more with their money in a Pension.
Speak to a financial adviser.
You have until midnight on 5th April 2024 to use your new allowances. If you have any concerns or questions, then speak to a financial adviser today, and think about how you can do more with your money in the coming twelve months.
If you need financial advice or would like to open an account yourself click Start Investing or call our dedicated team on 0191 625 0350.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time.
This article is for information only and should not be considered financial advice or a personal recommendation.
Pension eligibility and tax rules apply. You should also ensure your gross contribution does not result in your total Pension contributions within the tax year exceeding the lower of £60,000 or your earnings in this tax year.
ISA eligibility and tax rules apply. You should ensure your contribution does not result in your total ISA contributions within the tax year exceeding £20,000.
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