A quick recap of the main tax changes
Capital gains tax (CGT) allowance cut - from April 2023, the CGT allowance will be cut from £12,300 to £6,000, and then again to £3,000 from April 2024. This means that even small gains on the sale of assets, such as shares or funds held in general investment accounts, will be taxable - catching many more people in the tax net.
Dividend tax allowance cut - the amount you can earn from dividends without paying tax will be cut to just a quarter of its current value over two years.
Inheritance tax threshold frozen - this will remain at £325,000 until at least 2028.
Income tax personal allowance, basic and higher rate thresholds frozen - these will remain at their current levels until at least 2028.
Additional rate income tax threshold reduced - the threshold for when you start paying the highest rate of tax, known as the additional rate, will come down from £150,000 to £125,140 from April 2023.
Please also be aware that if you live in Scotland, some bands and rates of tax are different. You can find out more about Scottish tax rates here.
1. Make the most of your ISA allowance before the end of the tax year
One of the most tax-efficient ways you can save and invest is through an individual savings account (ISA) as there’s no income tax, personal tax on dividends or capital gains tax to pay on any investment growth or interest you earn, or on the money you take from it.
You can currently put up to £20,000 into an ISA each tax year. So if you haven’t yet used up all your allowance, think about doing so before the end of the tax year.
2. Top up your pension
A pension is another one of the most tax-efficient ways to save. The government even encourages pension saving by giving tax relief.
Tax relief is based on the rate of income tax you pay. For example, if you’re a basic rate taxpayer, you’ll get 20% tax relief, meaning for every £100 that goes into your pension, the government contributes £20. And higher and additional rate taxpayers can claim 40% and 50% tax relief respectively.
Remember though that the annual allowance for pension contributions is currently £40,000 a year. There’s also an overall lifetime allowance of £1,073,100 which caps how much you’re able to pay into your pension in total over your lifetime without incurring further tax. This is frozen at this level until April 2026.
3. Use your partner's allowances
If you’re married or in a civil partnership, you may be able to benefit from using your partner’s ISA allowance, meaning you can save or invest £40,000 tax efficiently. You could also make the most of your partner’s pension allowance if you’ve reached your limit, but they haven’t.
If you own an asset jointly with your spouse or civil partner, when you come to sell it, you can combine your CGT allowances and so pay less tax. Married couples or those in a civil partnership can also transfer assets to each other without any CGT charge, although the transfer must be a genuine and outright gift. If the asset is subsequently sold, your spouse or partner will pay capital gains tax on the gain made from the date you first owned it, rather than from the date you transferred it to them.
Unmarried partners can each nominate a different property as their main home, and benefit from tax relief on both as capital gains tax isn’t payable on the sale of your main home.
4. Consider gifts and trusts
Financial gifting in your lifetime could help reduce the amount of inheritance tax that’s payable on your estate when you die. But it’s important to make use of the various exemptions and allowances available to make sure that your gifts are as effective as possible.
Some gifts are free from inheritance tax, both at the time you make them and in the future. These are called exempt gifts – you can find out more about these in our article on Tips on gifting and inheritance tax.
If you have concerns about making a gift directly to another person, you could look at making it into a trust instead. But trusts can be complex and are an area where specialist advice can be invaluable.
5. Get professional help if you need it
Tax can be complicated. If you have any questions about how the tax changes may affect you, or you need help making sure you’re managing your money in the most tax-efficient way, getting professional advice can give you peace of mind. A financial adviser will go through all the options available and work with you on a tailored plan.
If you already have an abrdn financial planner, get in touch with them – they’ll be happy to help. Or book a free call to find out how we could help you.
The information in this article should not be regarded as financial advice. Information is based on our understanding in November 2022. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. The value of investments can go down as well as up, and could be worth less than was paid in.