Be an ISA or SIPP early bird

ISAs

This tax year’s (2022/23) ISA allowance is £20,000. It is available to UK residents over 18, the main options being a Cash ISA and a Stocks and Shares ISA. You can split your allowance between these if you wish. Charles Stanley only offers Stocks and Shares ISAs.

Investments in an ISA are sheltered from capital gains tax and income tax. By investing early in the tax year you have up to a year’s worth of extra income and growth potential – though your investment could fall over this period rather than rise.

Remember, annual ISA allowances cannot be carried forward – if you do not secure this tax year’s allowance by 5 April 2023 it will be lost. It is also worth noting that Charles Stanley ISAs have the additional benefit of being 'flexible' ISAs, which means you can make withdrawals during the tax year and then replace them, providing you don’t go over your annual allowance.

Junior ISA

The Junior ISA allowance remains at £9,000 this tax year. A parent or legal guardian of an eligible child can open a Junior Stocks & Shares ISA, manage the account and make the investment decisions. Grandparents, relatives or family friends can then also contribute at any time up to the annual investment limit.

Pensions

The maximum that can be contributed to all your pensions during the tax year and receive tax relief (known as the 'annual allowance') remains at £40,000. Income tax relief on personal contributions is generally limited to your relevant UK earnings for the tax year.

Currently, an investor can receive up to 45% tax relief when they make a personal contribution to a personal pension such as a SIPP, with 20% tax relief paid by the HMRC to the pension and any higher and additional rate tax relief reclaimable. Rates of tax and pension tax relief for Scottish taxpayers is slightly different from the rest of the UK.

For people who receive ‘flexible’ retirement benefits, such as a flexi-access pension, a lower annual allowance of £4,000 applies. For high earners the annual allowance is reduced on a gradual basis down to a minimum of £4,000 but this is only a consideration for those earning over £200,000 a year.

It remains possible for non-tax payers to benefit from pension tax relief to a limited extent. Relevant UK individuals under age 75 can contribute up to £2,880 to a pension and receive tax relief of £720, resulting in a total contribution of £3,600 irrespective of earnings.

The cap on the total value of your pensions from which you can draw benefits without triggering a tax charge (known as the “lifetime allowance”) remains frozen at £1,073,100. Defined benefit (‘final salary’) pension benefits are also tested against this limit based on the amount of income they provide when they come into payment.

The tax treatment of pensions depends on individual circumstances and may be subject to change in future.

Capital Gains Tax allowance

The capital gains tax ‘annual exempt amount’ (the maximum profit you can make on selling assets without paying capital gains tax) remains at £12,300.

The rates payable on Capital Gains Tax are 10% basic rate and 20% higher rate, but on residential property (other than your own home) the rates are 18% and 28% respectively. Your rate of capital gains tax will depend on your other taxable income. See the HMRC website for more.

Dividend allowance

For all UK taxpayers the first £2,000 of dividend income in each tax year requires no additional payment of tax – this is known as the Dividend Allowance. Dividends received above this allowance are taxed as follows:

• Basic rate taxpayers 7.5%
• Higher rate taxpayers 32.5%
• Additional rate taxpayers 38.1%

The Dividend Allowance is separate to the income tax personal allowance (also frozen at £12,570) and the personal savings allowance (see below).

Personal savings allowance

The personal savings allowance grants every basic-rate taxpayer £1,000 of savings income free from income tax, with higher-rate taxpayers receiving a £500 allowance. Additional-rate taxpayers on the top 45% income tax rate receive no allowance.

Interest from sources that are already tax-free, such as assets held in ISAs and Premium Bond 'winnings', don’t count towards the allowance, but some investments do count, including holdings of gilts and corporate bonds, as well as unit trusts, OEICs and investment trusts that invest predominantly in bonds and pay interest as opposed to dividend income.