10 checks to make before tax year end

The end of the tax year is rapidly approaching, with April 5th marking the last day of the current tax year. April is the deadline for when you can use up certain allowances or claim some tax breaks before the new tax year starts. So here’s your 10-point checklist to make sure you’re ready for tax year end. Once you’ve ticked them off you can reward yourself with a big pat on the back (or some chocolate, your choice).

Check 1: Have you topped up your ISA?

Everyone gets a £20,000 ISA allowance every tax year, which resets on April 6th. And it’s use it or lose it, so you need to think carefully about it before the end of the year. Now, clearly in the middle of the cost of living crisis the bulk of us won’t have £20k to put into our ISAs this year, but it’s still worth taking action. The Lifetime ISA has a lower limit of £4,000 a year, so you might want to top that up, and if you’ve got spare cash that you were planning to invest it’s a good idea to do it before the end of the tax year – who knows, you might need to use your full allowance next year.

Check 2: How’s that pension looking?

Pensions have an annual limit too, which is £40,000 for most people, or 100% of your salary – whichever is lower. Like with the ISA allowance, not many of us are maxing out this limit, but if you’d been intending to top-up your pension with a lump sum, it’s a good idea to do it before the deadline so it’s ticked off in this tax year. 

Even if you haven’t had any income this tax year, you can still put £2,880 into your pension and the Government will top it up to £3,600. It’s worth thinking about whether that’s worth doing from your savings or your joint income if you’re in a couple.

Check 3: Are you near a high earning threshold?

The tax system is pretty darn tricky to navigate, so it’s understandable that lots of people get caught out by it. There are a few thresholds to be aware of, but the biggie is earnings of £100,000. If your income, plus bonus, commission, and any investment income all equals more than £100,000 you’re going to be hit with a higher rate of tax. The good news is that you can bring your earnings under that threshold by making pension contributions. The detail is a bit tricky, but you can read more about it here.

Check 4: Have you claimed the marriage allowance?

If you’re not working or have a low income (maybe because you work part-time, are on maternity leave or just taking a career break) and your partner is a basic-rate taxpayer (which means they earn £50,270 or less) then you can claim a tax break called the marriage allowance. This means that you pass any of your unused tax-free allowance to your partner, and their tax bill gets reduced. Read more about whether marriage allowance applies and how to do it.

Check 5: Are you a parent who has earned more than £50,000?

If you’re claiming child benefit and your earnings this year are going to tip over £50,000 then you’ll lose some of that child benefit. You lose it on a sliding scale, with 1% of your entitlement lost for every £100 you earn over the threshold, before it gets entirely wiped out when you earn £60,000. We’ve got a handy little guide here to how child benefit works if you want more info, but you can make pension contributions to bring your earnings down below that £50,000 mark so you get the full child benefit.

Check 6: Are some of your savings going to the taxman?

Most people can earn some interest on their savings before they have to pay tax, which is called the Personal Savings Allowance. If you’re a basic-rate taxpayer you can earn up to £1,000 while a higher rate taxpayer can earn up to £500 a year. If you’re an additional rate taxpayer you get no limit. Savings rates have risen, so if you’ve switched to a top-rate account and you have a decent amount in cash, you might find you hit this limit. Back when base rate was 0.1%, if your savings were earning that interest, a basic-rate taxpayer would need to have £1 million in cash to hit their £1,000 tax-free limit. But now the top easy-access account is paying 3.05% they’d only need to have £32,750 in savings to hit the limit.

If you’ve already hit the limit there isn’t much you can do about it for this tax year, but you can stop it happening next year. Money in an ISA is protected from tax, so you could move some cash into an ISA. Often ISA accounts have lower interest so you’ll just need to weigh up whether it’s better to put it in an ISA or pay tax on the interest. Get that calculator out!

Check 7: Are your kids going to hit your tax bill?

Another weird 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 savings interest, which means it could be taxed (if you’ve already gone over your Personal Savings Allowance – or if it tips you over it). Money given to your children from family and friends doesn’t count towards this limit.

Again, ISAs are the solution to this, as any interest earned on a Junior ISA won’t be counted towards your tax bill. You can put up to £9,000 into an ISA per child, which is more than most parents need. You’ll need to do the same sums as above to work out whether taking a lower interest rate is worth it or whether you’re better off taking the tax hit.

Check 8: Cash in your gains – if you want to

Anyone with money outside an ISA or pension could pay tax on their gains, assuming their investments have grown in value. Within an ISA or pension you’re protected from this, but if you’ve got a dealing account or general investment account you could find you have to pay capital gains tax. You’ll only pay the tax once you’ve sold the investments (which is called ‘realising’ the gain).

The good news is that everyone has an amount of gains they can make each tax year before they have to pay the tax – for the 2022/23 tax year that’s £12,300. The bad news is that the Government is slashing that limit from April down to £6,000 (and again to £3,000 from April 2024). That means if you’re sitting on big gains it might be worthwhile selling the investment and realising the gains 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).

Or you can do something called "Bed and ISA" which sounds bizarre, but basically means you sell it and buy it back in your ISA, so any future gains are protected from the taxman. 

Check 9: Don’t get taxed on your side hustle

Everyone is trying out ways to make extra money at the moment, but make sure you’re not taxed on that money if you can avoid it. If you sell stuff on the side, have a little Etsy business, do some casual work on weekends or rent out items you own for an income, all of that can be tax free. 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, which is called the ‘trading allowance’. Check out the Government advice to see whether you need to declare it or not.

Check 10: Sharing is caring

If you’re in a couple there are some benefits to sharing assets. For example, if you’ve maxed out your Lifetime ISA allowance but your partner hasn’t, you could transfer money to them and use their allowance (assuming they are eligible for the account). The same is true for their capital gains tax allowance, you could move investments to them so they can sell them and use up their tax-free allowance. Transfers to a spouse (so a husband/wife or civil partner) are usually free of tax.

But the big thing to bear in mind here is whether you’re comfortable moving money to them, because then it will be theirs and they are under no obligation to give it back to you at a later date. So, it all comes down to how you manage money as a couple.

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