3 crucial financial steps to take at the start of the tax year

Spring has arrived, bringing new beginnings along with it. Many people see this time of year as an opportunity to take stock and do some spring cleaning, and you may want to do the same with your finances.

A new tax year started on 6 April 2023, which means new opportunities for saving and investing tax-efficiently. Additionally, a number of significant changes came into effect after the spring Budget announcement. As such, it is important that you keep up with these shifts in the financial landscape so you know whether you are likely to be affected.

These three crucial financial steps to take at the start of the tax year can help you make your finances more efficient.

 

1. Book a review of your financial plan

Booking an appointment with an adviser to review your financial plan may help you understand all of the 2023 Budget changes and how they might affect you.

Indeed, many changes to pension allowances and tax rules came into effect on 6 April 2022. Some of these changes may mean you can make more tax-efficient savings, while others could mean you face an increased tax bill.

You may also need advice on how to make the most efficient use of your current allowances, and in turn, if you need to make changes to your financial plan.

Even if you don’t need to make alterations, it may still be useful to check your progress at the beginning of a new tax year.

 

2. Begin making the most of your tax-efficient allowances straight away

Many people wait until the end of the tax year is approaching before topping up their ISA ahead of the deadline. However, it can be beneficial to make your ISA contributions early in the tax year.

A study by HL explored the difference in returns when investing £5,000 in an ISA on the first and last day of the tax year between April 1999 and April 2022.

They found that investing early could have increased your returns by as much as £10,000 over this period. That’s because the longer your money is in an ISA, the more potential there is for growth.

 

Source: HL. Includes 2021/22 tax year subscriptions for both.

While past performance is not a guarantee of future performance, your money may be likely to grow more if you take advantage of your overall £20,000 ISA allowance right away.

The pension Annual Allowance also increased from £40,000 to £60,000 on 6 April 2023. This means you may be able to benefit from tax relief on more of your pension contributions. Starting early could help you maximise contributions so you can take full advantage of the increased allowance.

Remember that while you can usually carry your unused pension Annual Allowance to the following tax year, you cannot do the same with unused ISA allowances. That’s why you may want to consider using them as early as possible.

 

3. Prepare for changes to your tax bill

Changes to tax rules announced in the Budget mean that you may face a higher bill in the 2023/2024 tax year, and now is the time to prepare.

For instance, Income Tax thresholds for the basic- and higher-rates are frozen until April 2028. While this does not appear to be a direct tax increase, it may mean that you pay more Income Tax in the future. This is because if your earnings increase while the thresholds stay the same, more of your earnings may be taxed at a higher rate.

The additional-rate Income Tax threshold was also reduced to £125,140 on 6 April 2023. According to government predictions, an estimated 232,000 people will pay the additional rate of Income Tax for the first time as a result of this change. If your income is more than £150,000 you will pay, on average, £1,256 more in Income Tax.

Additionally, the Capital Gains Tax (CGT) annual exempt amount and Dividend Allowance reduced on 6 April 2023, and the Inheritance Tax (IHT) nil-rate bands have been frozen. This may lead to an increased tax bill on profits made from dividends or selling assets, and your estate may also be subject to more IHT when you pass it on to loved ones.

Fortunately, there are ways to potentially mitigate the amount of tax you pay. Speaking with a financial adviser at the beginning of the tax year can help you prepare ahead of time and understand how tax changes may affect you.

 

Get in touch

If you have questions about the financial steps you could take now that the new tax year has begun, we can give you the advice you need.

Email info@chancellorfinancial.co.uk or call 01204 526 846 to speak to an adviser.

 

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.