Four tips and tricks for tax year end

Exemptions such as the capital gains tax allowance and the dividend allowance are much smaller than just a few years ago, meaning it is easy to trigger a liability from a very modest level of assets held outside of tax wrappers.

Most people are familiar with the basics, but what are the lesser-known options to consider that can help you maximise your investment returns and minimise tax?

Use a ‘Bed & ISA’ approach to protect existing holdings

If you don’t have cash to use up your ISA allowance but you do have investments held outside an ISA, a ‘Bed & ISA’ could be just the ticket.

A Bed & ISA involves selling holdings and then buying them back in an ISA account, which creates a gain (or loss) for capital gains tax purposes. Partially or fully selling could therefore help with tax planning by using some of your £3,000 capital gains allowance while keeping your shareholding.

You could use this to make an ISA contribution, thereby using some of your annual ISA allowance, and simplify up your financial affairs at the same time. Going forward any income or profits from the asset housed in the ISA will be tax free.

A Bed & ISA can be useful to tidy up small and non-tax-efficient parts of your portfolio or make more of neglected holdings. It could also reduce the work required to complete your tax return in the future.

Top up your flexible ISA

‘Flexible’ ISAs have a special superpower: you can withdraw and replace money during the tax year without using any of your ISA allowances built up, as long as you put the money back in by the tax year end.

For example, let’s say you currently have £50,000 in your ISA accumulated from previous tax years. If you then withdraw £10,000, you can pay this back into the ISA during this tax year and still use your full £20,000 annual allowance before 5 April 2025.

It is even possible to withdraw the entire balance from your ISA, even if it’s worth several hundred thousand pounds, and replace it by the tax year end on 5th April. It is important to note that if you fail to reinstate it by the end of the tax year, you will lose the ability to return the balance to your ISA without impacting your annual allowance.

Flexible ISA rules cover any dividend and income payments withdrawn too, so if you take an income from your ISA you can top it back up again if you have the cash to spare.

If you have taken income or withdrawals from your Charles Stanley Direct ISA this tax year, 5^th April is your deadline to replace that money and maximise the value held in your ISAs. Remember, most providers don’t offer a flexible ISA, which means you can’t replace any withdrawals taken this way. It’s also worth noting you can only repay withdrawals to the same ISA they were taken from.

Even non-taxpayers can benefit from pension tax relief

Currently, anyone under 75 with UK earnings can receive tax relief when they pay into a personal pension such as a SIPP. This can mean a 25% boost to the amount you contribute. For instance, an £800 payment becomes £1,000 invested once HMRC adds basic rate tax relief.

If you are a higher rate taxpayer, any further higher or additional rate income tax relief can be reclaimed – potentially a simple way of reducing your income tax bill for the year and boosting retirement savings at the same time.

What is less well known is that non-taxpayers can benefit from tax relief too – to a limited extent. Even an individual with no earnings can contribute up to £2,880 to a pension and receive a further £720, resulting in an overall contribution of £3,600. For a couple where one partner is a taxpayer and the other is not, it represents a bit of extra pension allowance that can be used.

Use pension 'carry-forward' to boost your tax-free savings

Pensions are often a highly effective means of investing for retirement owing to the tax relief available on payments into them – but there are important limits.

Payments you make that attract relief are restricted to 100% of your relevant UK earnings, plus overall contributions, including those paid by your employer and any tax relief, are also subject to an ‘annual allowance’, which is currently £60,000. Higher earners get a lower annual allowance, which could limit their maximum contribution to as little as £10,000 in a tax year.

However, if you haven’t used your full annual allowance from up to three previous years, you might be able to carry these forward to use in the current tax year, provided your earnings are high enough and you have been a member of a registered pension scheme in those preceding years.

People earning more than £60,000 who wish to maximise pension contributions may be able to take advantage, particularly those with lumpy earnings from year to year and have a need to ‘catch up’ on their pension savings.

Charles Stanley is not a tax adviser. Information contained within this page is based on our understanding of current HMRC legislation. Tax reliefs and allowances are those currently applying and the levels and bases of taxation can change. Tax treatment depends on the individual circumstances of each person or entity and may be subject to change in the future. If you are in any doubt, you should seek professional tax advice.