Last updated February 2023
The current tax year is coming to an end and you might have spotted some of the banks suggesting it’s an important deadline with loads to think about. Truth is, a lot of us don’t need to do anything at all, but it’s still good to double check in case you are one of the people who could benefit from taking action. If you are, it’s a great reason to review your finances and make sure that you've taken advantage of all of the tax efficiencies available.
Because we don’t want any of you to miss out, we’ve written this guide to help you understand what the tax year is, when it ends, how you can decide if you need to do anything and what action to take if you do.
What is the end of tax year?
The end of tax year, and the beginning of a new one, is when your tax allowances reboot. If you’re employed, it is when your tax code will refresh and if you’re self-employed, it’s when you’ll need to submit your tax returns. It’s also when your tax-free ISA allowances will renew, which is what we’re focusing on in this article.
When does the tax year end for 2022/23?
The current 2022/23 tax year began on 6th April 2022 and will end on 5th April 2023.
Do I need to do anything for the end of tax year?
For most people, the end of tax year is nothing to worry about because they’re not close to maxing out their ISA allowance. However, for those who are close to reaching the £20K limit, you may be able to benefit from tax efficiencies by using up your allowance within the current tax year, because it doesn’t roll over into the next tax year. To make it simple to understand if you need to act, we’ve pulled together a simple flow chart with a few key questions to ask yourself.
What should I do before end of tax year?
If you’ve decided that you could benefit from taking action for the end of the tax year to make the most of your tax-free allowance, there are a few different routes you could take. Here we’ve listed some of the most popular.
1) Top up your ISA
The 2022/23 personal ISA allowance is £20,000. Any returns made within an ISA are tax efficient and are free of UK income tax and capital gains tax. If you do not use your allowance, you can’t carry it over to a new tax year. So, if you’ve got savings lying around in your current accounts, it may be worthwhile putting as much savings as you can in a tax efficient ISA. If you don’t already have an ISA, find out how investing with OpenMoney works, and we can give you a personalised recommendation to say whether this is a good option for you and your circumstances.
2) Contribute towards your retirement
As with your ISA, it may be worthwhile considering topping up your pension to increase your savings for retirement. When saving in a pension you receive income tax relief, depending on your personal circumstances. The annual allowance for 2022/23 for pension contributions is typically £40,000 but this depends on your personal circumstances. It is also worth noting that you can also bring forward unused allowances from previous three tax years, as long as you were a member of the pension scheme within those years, and you would need to have sufficient UK relevant earnings in the current tax year to cover the additional contribution.
3) Save for your children
If you have children, it may be a good idea to start saving for when the reach the age of 18. Parents or guardians can open a Junior ISA (JISA) on behalf of their children and they can only access when they reach the age of 18. As with an adult ISA, returns on money made within a Junior ISA are free of UK income tax and capital gains tax. The annual allowance for a JISA in 2022/23 is £9,000.
4) Use your capital gains tax allowance
Everybody has an annual capital gains tax allowance of £12,300 in the 2022/23 tax year. This means that if you dispose or sell any assets such as property and stocks are shares, you won’t be taxed on the profits if they're below £12,300. It’s important to note that the capital gains tax allowance is set to reduce to £6,000 in 2023/24 and then again to £3,000 in 2024/25. You cannot carry over any unused capital gains tax allowance to the next tax year, so if you are planning to sell your assets, it may be worth considering doing so before the changes come into effect in the following tax year.
Just remember, with any form of investing your money is at risk and there is a chance you could get back less than you originally put in. If you’re interested in knowing more about investing opportunities available to you, please reach out to one of our qualified financial advisers who can help. Either email, call or message us on Live Chat.