There’s just a few days until the end of the tax year and not much time left to sort your finances out.
I know we bang on about Isas, pensions, and tax at this point of every year, but it’s probably never been more important to think about whether you need to act by 5 April. And that’s this Friday.
You need to use as much of your Isa allowance as you can, get money into a pension if you need to this tax year, look at any savings and investments in standard accounts and consider shifting them into the tax-free wrapper of an Isa.
![The Chancellor's crunch: Jeremy Hunt is about to impose the second round of his tax attack on everyday investors](https://topnews.media/wp-content/uploads/2024/04/83188389-13264563-image-a-1_1712139397609.jpg)
The Chancellor’s crunch: Jeremy Hunt is about to impose the second round of his tax attack on everyday investors
The tax raid on investors
The Chancellor is about to impose round two of his massive attack on small investors, as he slashes the capital gains tax and dividend tax allowances once again.
The last time the capital gains tax allowance was this low was the 1981 to 1982 tax year
I’m not sure what Jeremy Hunt has got against Britain’s everyday investors, but he has staged the biggest tax raid in decades on them over the past 12 months.
A year ago, the annual capital gains tax allowance stood at £12,300.
On 6 April 2023, it was cut to £6,000 and from 6 April 2024, it will be halved again to just £3,000.
The last time the capital gains tax allowance was this low was the 1981 to 1982 tax year.
Up until recently, hardly any small investors were greatly affected by or even paid capital gains tax, as hefty profits of more than £12,000 a year were well beyond them.
Now, with the limit soon to be just £3,000, many more will find themselves paying tax on holdings that have ended up outside of an Isa or pension, if they either sell up to cash in or shuffle their portfolio.
At 10 per cent for basic rate taxpayers or 20 per cent for higher rate taxpayers, the levy isn’t huge but it eats into returns on money invested that in most cases already had income tax imposed on it in the first place.
And the Chancellor’s freeze on income tax thresholds, combined with the sneaky addition of capital gains to other income to decide which bracket you are in, has dragged many more people into paying the higher rate.
It’s a similar picture for dividends. A year ago, the annual dividend allowance was £2,000. In his wisdom, Mr Hunt hacked that back to £1,000 at the start of this tax year and from 6 April it will be just £500.
Again, many more investors will find their dividend income eaten into by tax.
This will affect small investors far more than the very wealthy
While Mr Hunt’s reasons for cutting long-standing tax allowances to the bone remain shrouded in mystery, one thing is clear – they certainly aren’t tax raids aimed at the properly rich.
This will affect small investors far more than the very wealthy.
High-rollers paid in dividends, or shares to make capital gains on, to lower their tax bills won’t lose that much.
The amounts they pull in potentially make even the difference between a £12,300 capital gains allowance and a £3,000 one, or a £2,000 dividend allowance and a £500 one, relatively small.
For a smaller investor the impact against their profit or income is proportionately much greater.
The Chancellor should be raising allowances with inflation – instead he has cut them by 75 per cent.
The tax squeeze on savers
Fortunately, he hasn’t chosen to halve the £1,000 personal savings allowance too, but Mr Hunt also hasn’t raised it, even as inflation rocketed and interest rates climbed.
And for an unlucky bunch of people, Mr Hunt is halving the personal savings allowance through fiscal drag.
With the frozen higher rate income tax allowance threshold, he has dragged many more into having a personal savings allowance of just £500.
And by lowering the 45p tax rate threshold from £150,000 to £125,140 – where it is lost altogether – he has given even more people a personal savings allowance of zilch.
Use your Isa or pension if you can
There is a way to beat this tax raid though. Get your money into an Isa and you don’t need to worry about tax on investments or savings, as we explain in full in our essential Isa guide.
Most of us have little to no hope of using up our full £20,000 Isa allowance each year, although an estimated 800,000 people do.
But if you’ve got savings or investments outside of an Isa, consider shifting them into a cash or stocks and shares Isa to use some of your unused portion of annual Isa allowance. If you act quickly, there is still time to do this by Friday.
You can read more on how to do this for investments with a Bed and Isa here, but remember most platforms’ deadlines to do this for you will have passed, so you may have to sell and rebuy within an Isa yourself.
Check first with your investment platform or provider if selling up will settle in time and whether you can then get the money into an Isa.
When it comes to pensions, you can usually now pay in up to £60,000 a year – a level most are again very unlikely to need. But if you need to reduce your income to dodge high marginal rates from things like the child benefit removal, 60 per cent tax trap above £100,000, paying some in this tax year can help. Read our guide from our pensions columnist Steve Webb on how paying into a pension reduces net income.
Remember though you need to act on these things before Friday – and that doesn’t mean you should leave it until then. Work on the basis that it’s already the last minute
Leaving things later than today means there’s no margin for error if things don’t go smoothly. And this year that could cost you a bigger chunk of your small fortune.
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