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It’s never too early to start thinking about tax-year end and the planning opportunities that come with it.

The UK tax year runs from 6 April to 5 April each year, and from April 2024, there are a number of changes coming into effect that could have an impact on the average investor.

After a particularly turbulent investment environment in 2023 (and 2022), investors are seeking reassurance that the outlook for 2024 is positive. A quick skim of predictions made for 2024 by various analysts and institutions indicates what we all know – the road ahead will probably remain bumpy and uncertain in the short term.

While markets remain cautious however, it is important to keep a long-term view. Understanding the upcoming tax year changes and taking advantage of investing early will help ensure that your long-term strategy remains on track.

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PENSIONS & INVESTMENTS

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2024 tax year considerations

During the previous 12 months, we saw a large number of individuals taking advantage of higher rates offered by cash savings, but these rates were still far below inflation. For long-term investors, investing in stocks & shares still has the greater potential for higher returns than offered by cash savings.

ISA planning

The tax-free investment growth offered by ISAs is still a fantastic way to save. The current ISA subscription limit remains at £20,000 – however from the April 2024 tax year, savers are no longer limited to investing in only one of each type of ISA in a given tax year.

The different types of ISA include Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs and Innovative Financial ISAs.

The annual ISA allowance cannot be carried forward each year, so now may be the perfect time to invest a lump sum.

ISAs can also be transferred while maintaining the tax-efficient status of your savings. So, should you have a fixed rate ISA coming to end, you could consider transferring to a Stocks & Shares ISA that may offer a higher level of growth in the coming years.

Capital Gains Tax

The annual exemption amount for Capital Gains Tax (CGT) will be decreasing further in April 2024, reducing from £6,000 per year to £3,000.

The reductions in the CGT exemption will expose more individuals to a potential tax bill on selling or disposing of assets.

With the reduction in CGT allowances imminent, sheltering wealth within tax-efficient accounts such as ISAs and pensions remains the ideal outcome.

The spousal transfer rules also remain the same, meaning married couples can effectively ‘double up’ their annual exemption amounts.

Dividend allowance

The arrival of the 2024/25 tax year means further reductions to the dividend allowance, with the annual tax-free amount reducing again from £1,000 to £500.

The government predicts that 4,405,000 individuals and families will be impacted by the reduction, though if you are a business owner, taking a combination of salary and dividends from your business will still remain more tax efficient than taking salary alone.

For investors, dividends received within ISAs will remain tax free, though more investors holding funds within unwrapped investments will be hit by the reduction, and should consider moving funds to ISA and pension wrappers where possible.

Children’s investments

Cash ISAs are also increasing the minimum age for subscription, bringing this in line with age 18 for all other types of ISA. But you can still save for your children, with Junior ISAs remaining available for those under 18.

The Junior ISA subscription limit remains at £9,000 and can be invested within stocks & shares, offering an opportunity for long-term growth potential for your children, to help with university costs or buying their first home.

Pension funding

Pensions still remain one of the most tax-efficient savings vehicles for your retirement; the standard annual allowance remains at £60,000 following the increase last April and as of April 2024, the lifetime allowance, or limit on how much pension savings could be built up without a tax charge, will be abolished.

ISA planning

The tax-free investment growth offered by ISAs is still a fantastic way to save. The current ISA subscription limit remains at £20,000 – however from the April 2024 tax year, savers are no longer limited to investing in only one of each type of ISA in a given tax year.

The different types of ISA include Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs and Innovative Financial ISAs.

The annual ISA allowance cannot be carried forward each year, so now may be the perfect time to invest a lump sum.

ISAs can also be transferred while maintaining the tax-efficient status of your savings. So, should you have a fixed rate ISA coming to end, you could consider transferring to a Stocks & Shares ISA that may offer a higher level of growth in the coming years.

Pension funding

Pensions still remain one of the most tax-efficient savings vehicles for your retirement; the standard annual allowance remains at £60,000 following the increase last April and as of April 2024, the lifetime allowance, or limit on how much pension savings could be built up without a tax charge, will be abolished.

Children’s investments

Cash ISAs are also increasing the minimum age for subscription, bringing this in line with age 18 for all other types of ISA. But you can still save for your children, with Junior ISAs remaining available for those under 18.

The Junior ISA subscription limit remains at £9,000 and can be invested within stocks & shares, offering an opportunity for long-term growth potential for your children, to help with university costs or buying their first home.

Dividend allowance

The arrival of the 2024/25 tax year means further reductions to the dividend allowance, with the annual tax-free amount reducing again from £1,000 to £500.

The government predicts that 4,405,000 individuals and families will be impacted by the reduction, though if you are a business owner, taking a combination of salary and dividends from your business will still remain more tax efficient than taking salary alone.

For investors, dividends received within ISAs will remain tax free, though more investors holding funds within unwrapped investments will be hit by the reduction, and should consider moving funds to ISA and pension wrappers where possible.

Changes to Capital Gains Tax

The annual exemption amount for Capital Gains Tax (CGT) will be decreasing further in April 2024, reducing from £6,000 per year to £3,000.

The reductions in the CGT exemption will expose more individuals to a potential tax bill on selling or disposing of assets.

With the reduction in CGT allowances imminent, sheltering wealth within tax-efficient accounts such as ISAs and pensions remains the ideal outcome.

The spousal transfer rules also remain the same, meaning married couples can effectively ‘double up’ their annual exemption amounts.

Changes to ESG & impact investing in 2024

At the end of May 2024, the Financial Conduct Authority will be implementing new anti-greenwashing rules and guidance, which will help individual investors and firms identify with more ease who is, and who isn’t, taking ESG concerns seriously.

With the introduction of new labels, stricter naming and marketing rules and detailed and accessible sustainability information, there will be far less opportunity for some of the world’s worst offenders to hide in historically questionable ‘ethical’ or ‘ESG’ funds.

The regulator’s stance on ethical and impact concerns is welcome news not only for us, and for our existing clients; 81% of adults surveyed in the UK want their money to do good in addition to providing a financial return, with 76% wanting to invest in a manner that protects the environment.

With clearer rules coming into play, more companies than ever will be faced with a choice; change now, or be clearly ‘labelled’ on the wrong side of history.

Happy New Tax Year!

RISK WARNING:
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Path Financial are leading ethical financial advisers based in the UK.

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[1] https://www.gov.uk/government/publications/reduction-of-the-dividend-allowance/income-tax-reducing-the-dividend-allowance
[2] https://www.fca.org.uk/publication/policy/ps23-16.pdf