Since 6th April 2024, the dividend allowance was reduced by 50% from £1,000 to £500. This could mean a big tax bill for those holding income-paying investments outside of an Individual Savings Account (ISA) and Self Invested Personal Pension (SIPP). The capital gains tax (CGT) allowance has also halved to £3,000 – down from £12,300 a few years ago.
It’s also expected millions will now have to start paying tax on their savings interest, as interest rates have gradually risen to their highest levels in 15 years. Tax on interest can range from 20%-45%, depending on your tax band, so it’s essential to shelter your savings and investments from tax where possible.
How to save tax
By switching from general investment accounts to ISAs and SIPPs you can protect yourself from having to worry about whether your trading activity is going to land you with a large tax bill. You can make any number of changes to your investments, even significant ones.
Have you taken advantage of the tax allowances available to you yet? Here’s how to save tax with an ISA or self-invested personal pension (SIPP) for the 2024/2025 tax year.
Four tax-saving tips for 2024
1. Open a Stocks & Shares ISA
A Stocks and Shares ISA is a type of investment account where individuals can invest in a variety of investments, such as shares and bonds, to generate a return on their investments.
The main benefit of a Stocks & Shares ISA is tax related. Any gains you make from your investments, and any dividends paid out, are tax free, so you won’t be subject to Income Tax and CGT. In a world where taxes are rising, it’s important to take advantage of government incentives where possible.
Our Stocks & Shares ISA is flexible so you can access your money at any time. You can add and withdraw your money through the year, providing you don’t go over your annual allowance.
You can shelter up to £20,000 from UK tax each year. The earlier you start adding to your ISA allowance, the more time your investments have to grow.
2. Start a Self-Invested Personal Pension
A SIPP is a type of pension that lets you select investments from a much wider range of options than most workplace pensions. This means the potential to achieve a stronger return and build up your retirement pot quicker over the long term. Of course, investments can fall as well as rise so there’re no guarantees.
Making use of pensions such as a SIPP is one of the best ways to save on tax. You benefit from growing your investments without having to worry about paying UK Income Tax or CGT. Another benefit of the SIPP is that you receive between 20% and 45% tax relief on your personal contributions as an incentive to save towards your retirement. It means £1,000 added to your SIPP could cost you as little as £550.
As with most pensions, you usually need to be at least 55 (rising to 57 in 2028) before you can access the money in a SIPP. Follow the link to find out more about how SIPPs work.
3. Transfer from a General Investment Account
With major cuts to the CGT and dividends allowance, it’s sensible to shelter your investments from tax by making a significant shift from holding investments in a general investment account to ISAs or SIPPs.
The process involves selling investments in a general investment account, transferring the proceeds to an ISA or SIPP and then reinvesting into the stock market. This can be into the same stocks (known as a Bed & ISA), or a different stock of your choice. Please note, selling investments in a general investment account could be subject to CGT and that dealing charges apply when buying and selling holdings.
Why not consider consolidating your investments under one roof? It’s easy to lose track of your pension pots and other types of investments accounts you’ve built up over the years.
Charles Stanley Direct allows you to manage your savings and investments in one place, which can help you have better control of your finances with a single online log-in.
4. Review and rebalance your investments
The start of the tax year is a good time to spring clean your finances and review your investments and rebalance your portfolio, if necessary.
Rebalancing involves selling some of your investments that have performed well, and reinvesting into areas which haven’t done so well. This helps to restore the weighting in your portfolio between shares and bonds to stay aligned with your risk appetite and investment goals. Rebalancing is an important exercise for any investor, particularly if you’re holding investments outside an ISA or SIPP.
Top slicing your investments that have done well can contribute towards utilising your CGT allowance for the current tax year. Unlike losses, which can be carried forward into future years, profit is taxable in the same year as you crystalise your gain, so it makes sense to use your CGT allowance each year where possible.
It’s also a good idea to review your investment strategy from time to time, especially in the years leading up to retirement. Talking to an investment professional can make sure your investments stay aligned to your changing needs
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Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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