How to maximise allowances before the tax year end

What you’ll learn:

• How you can protect your savings from tax.
• Why it’s important to consider your capital gains tax allowance.
• Why pension allowances matter.

Here’s a handy checklist outlining how to make the most of your available allowances before 5 April. Tax rules can and do change and their effect on you will depend on your individual circumstances. Smart Investor doesn’t offer personal tax or financial advice. If you’re unsure, seek independent advice.

Item 1: Consider your ISA allowance

One of the most tax-efficient ways to invest is through an individual savings account (ISA). This can hold a wide range of investments, including cash, funds, shares, gilts and bonds.

You have an ISA allowance of £20,000 in the 2024-25 tax year, which can be split between cash, investment, innovative finance or lifetime ISAs.¹

There’s no income tax, tax on dividends or capital gains tax (CGT) to pay on any gains from investments held in an ISA.

It’s worth noting, however, if you invest outside an ISA you won’t necessarily have to pay any tax, as long as your dividends don’t exceed the dividend allowance, or any interest from cash, funds, gilts or bonds aren’t higher than your personal savings allowance.

Find out more about your tax allowances

Item 2: Decide if you want to top up your pension

Consider boosting your pension before the end of the tax year. If you’re employed and contribute to a company pension, check how much you’ve paid in. Many employers will match contributions up to a particular cap, so it’s worth taking advantage of this.

The more income tax you pay, the greater the tax relief on pension contributions. If you’re a basic rate taxpayer, for every £800 you pay in, HM Revenue & Customs will top it up to £1,000. If you're a higher or additional rate taxpayer you can claim back up to an additional 20%, or 25% on top of the 20% basic rate tax relief, through your tax return.

For most people, tax relief is available on pension contributions of up to £60,000 per tax year, or 100% of your income, whichever is lower. Your annual allowance will be tapered if you earn more than £200,000 and your income and pension contributions made on your behalf exceed £260,000.²

Even if you don’t pay tax, you’re still entitled to receive basic rate tax relief on pension contributions. The maximum you can pay into your pension as a non-taxpayer is £2,880 a year, which is equivalent to a £3,600 contribution once you include the available tax relief.

The minimum pension age you can access your private pension savings is currently 55. However, the Government have announced an intention to link this age to 10 years prior to the State Pension Age. If this passes into law, the minimum pension age will increase but bear in mind these pension tax rules can change in future and their effects will vary depending on your personal circumstances.

Item 3: Remember your CGT allowance

In the 2024-25 tax year you have an annual CGT allowance of £3,000. This means you can sell shares and investments, property and other assets without having to pay any tax on the first £3,000 worth of gains.³

For example, if you're planning on selling shares that will make £15,000 worth of gains, you could make use of any unused CGT allowances by selling the shares in two batches, during this tax year and the next one.

Bear in mind you do not pay CGT on assets held in a pension and ISAs, or on your main home.

Item 4: Don’t open two of the same types of ISA in one tax year

ISA rules mean you can split your allowance across a combination of different types of ISA.

However, you cannot open two of the same type of ISA, so you couldn’t pay into two cash ISAs within the same tax year, for example.

Item 5: Don’t assume you have to invest your ISA allowance in one go

If you want to invest your £20,000 allowance for the current tax year into an Investment ISA but haven’t decided where to invest, you can hold cash in your account.

Gradually investing your allowance may be useful if, for example, you want to make investment decisions at a later stage, or perhaps you’re uncertain of market conditions, and would like to bide your time.

Top up your ISA

If you already have an ISA you can consider topping it up before the end of the tax year so long as you stick within the annual limits. The ISA allowance is a use-it-or-lose-it arrangement for each tax year – you can’t go back and make use of unused allowances from previous tax years.

Find out why you should consider using your ISA allowance and when you’re ready, here’s how you can make a payment into your Smart Investor account.

Item 6: Be aware of changes when you access your pension

Anyone who has drawn more than their tax-free lump sum from their pension will have the amount they can contribute to a pension reduced to £10,000 or 100% of earnings, whichever is lower, as their annual allowance is replaced by the Money Purchase Annual Allowance (MPAA).

Even if you don’t pay tax, you’re still entitled to receive basic rate tax relief on pension contributions. The maximum you can pay into your pension as a non-taxpayer is £2,880 a year, which is equivalent to a £3,600 contribution once you include the available tax relief.

The minimum pension age you can access your private pension savings is currently 55, increasing to 57 in 2028.

Bear in mind these pension tax rules can change in future and their effects will vary depending on your personal circumstances.