10 ways to beat the taxman before April

With the end of the tax year nearing, it’s a great time to think about your finances, changes you want to make to your ISA or pension, and ways to get sorted for the next tax year. If you’re carrying out this spring clean, we’ve got 10 things for people to consider before the 5 April deadline.

1. Maximise your free money

There are plenty of ways to claim free money from the government, whether through tax breaks, benefits or account perks. Pensions offer one of the biggest opportunities, with basic-rate taxpayers receiving 20% tax relief, while higher and additional rate taxpayers can reclaim an extra 20% or 25% through self-assessment. This means that for a higher-rate taxpayer, every £1 in their pension only costs 60p.

Those eligible for a Lifetime ISA can pay in up to £4,000 each tax year and receive a 25% government bonus, adding up to £1,000 in free money annually. However, withdrawals before age 60 (unless for a first home) come with a 25% penalty, so it's important to plan carefully around that.

On top of that, a standard ISA will give you a tax break on your investment growth and interest earned, as well as any withdrawals being tax-free. Everyone can pay in up to £20,000 a year into the accounts, but use it or lose it, as once the new tax year hits that allowance is reset.

Many people also miss out on valuable government tax breaks or benefits. Check whether you’re eligible for things like marriage allowance, child benefit, free childcare hours, tax-free childcare or other benefits, as it could lead to significant savings.

2. Use your ISA allowances

Every adult has a £20,000 ISA allowance each tax year, offering a valuable way to protect your savings and investments from capital gains, dividend and income taxes. Those who qualify for a Lifetime ISA should consider using up to £4,000 of this allowance before the deadline to secure their government bonus. And remember, ISA allowances don’t roll over, so any unused portion is lost at the end of the tax year.

Learn about our Stocks and shares ISA

3. Protect your cash from tax

Higher interest rates and frozen tax bands mean more savers are now facing tax bills on their cash savings – the government estimates 2.1 million people are expected to pay tax on their savings this year. The Personal Savings Allowance has remained frozen since 2016, while interest rates have risen and more people have been pushed into the next tax bracket. The Personal Savings Allowance means basic-rate taxpayers can only earn up to £1,000 in interest before paying tax, while higher-rate taxpayers have a £500 allowance. Additional-rate taxpayers receive no exemption.

For those nearing or exceeding their allowance, using a cash ISA can be a simple way to protect interest from tax. In recent years, many savers avoided cash ISAs due to low interest rates, but often ISAs are now the more attractive option. Couples can also consider shifting savings between partners if one sits in a lower income tax rate band or has unused ISA allowance.

4. Beat the capital gains tax cut

Capital Gains Tax (CGT) allowances have been cut in recent years, dropping from £12,300 until April 2023 to £3,000 now. This makes it more important to consider how you realise gains, to avoid triggering an unnecessary tax bill. Selling investments up to the current CGT allowance before the tax year end could help reduce future tax bills for those holding assets outside an ISA or pension. Investors can also use a strategy known as Bed and ISA to sell investments, transfer the proceeds into an ISA, and repurchase them, meaning that future gains are protected from tax.

5. Prepare for the dividend tax squeeze

Dividend tax changes mean that in the past two years the tax-free dividend allowance has dropped from £2,000 to £500. As a result of these changes HMRC forecasts that just under 3.6 million people will pay tax on their dividends this tax year, almost double the number who paid three years ago.

Dividend tax is only applied to income-generating investments that aren’t in an ISA or pension, at 8.75% for basic-rate taxpayers, 33.75% for higher rate taxpayers or 39.35% for additional-rate taxpayers. If you are in this situation and have some of your ISA allowance remaining this tax year, you could use a Bed and ISA to move the dividend-paying investments into your ISA and protect them from future tax charges.

6. Avoid hidden tax traps

Frozen tax thresholds mean that more people are being pushed into higher tax brackets or are losing valuable benefits. Anyone who has received a pay rise in the past year should check whether they have moved into a higher tax band, as this could mean they are no longer eligible for benefits, such as the marriage allowance, child benefit or tax-free childcare.

For example, child benefit begins to taper once income exceeds £60,000 and disappears entirely at £80,000. Those earning above £100,000 lose access to tax-free childcare and free childcare hours, while those who start to earn over the Personal Allowance lose the marriage allowance. On top of that, if you move into the higher-rate tax bracket you’ll see your Personal Savings Allowance cut in half and you’ll pay a higher dividend tax rate. A small pension contribution could reduce your taxable income below these thresholds.

7. Work with your partner to cut tax

Couples who share their finances can reduce their tax bills. For example, if one partner is a lower earner, the couple could transfer savings or investments into their name to mean they pay a lower rate of dividend, capital gains, income and other taxes.

On top of that, if one partner hasn’t used up their ISA, pension, Personal Savings Allowance, or CGT exemption, it might be worth moving cash or investments around to take full advantage of those tax breaks. However, you need to be comfortable with sharing assets and money as a couple before you do this.

8. Plan for children’s or grandchildren’s future

Lots of parents and grandparents plan to save for children but never get around to it, often because life gets in the way. With a Junior ISA you can save up to £9,000 in the account per child each year, with the money growing tax-free until the child turns 18. At that point, the Junior ISA converts into a standard ISA, and the child can access the pot.

Even putting away £500 a year can result in a decent pot after a few years, assuming its invested and earning 5% return a year after charges. After five years you’d have a pot worth £2,900, and if it was saved for the full 18 years you’d have a pot worth almost £15,000. Someone who is able to put away the full £9,000 Junior ISA allowance each year, earning the same 5% return a year, will have £52,200 after five years or £266,000 after the full 18 years.

Another option for the very long-term is a Junior SIPP, which allows contributions of up to £2,880 per year, with government tax relief topping that up to £3,600. However, the child won't be able to access the money until at least age 57, but it can provide a solid head start on retirement savings.

Learn about our Junior ISA

9. Use gifting allowances to reduce inheritance tax

Inheritance Tax (IHT) is often called the most hated tax, but there are simple ways to cut how much your estate will pay. Every individual can gift up to £3,000 per year free of IHT, and this allowance can be carried forward if it wasn’t used in the previous year. Couples can combine their allowances to give away up to £6,000 tax-free annually.

On top of that, extra allowances apply for wedding gifts, with parents able to gift £5,000 to a child, grandparents able to give £2,500 to a grandchild, and anyone else allowed to give £1,000 tax-free. Small gifts of up to £250 per person each year are also exempt.

The most generous exemption is for gifts made from regular income, which can be unlimited if they don’t reduce the donor’s standard of living. If you haven’t used up your annual gifting amounts it’s a good idea to consider it before the end of the tax year.

10. Automate your investing

Lots of investors wait until the tax year deadline to pay money into their ISA. But spreading investments throughout the year can help smooth market volatility and reduce the risk of buying at the wrong time.

Regular investing also means you don't have to remember to make payments into the ISA. Lots of investment platforms allow automatic monthly investments starting from £25, making it easy to start small and build up your savings over time.

Learn about regular investing