Want to pay less tax? Here are five allowances to use by 5 April

You won’t be alone if you’re frustrated by the amount of tax you’re paying. Frozen tax thresholds are increasing our income tax bills, with the Office for Budget Responsibility (OBR) expecting the decade-long freeze to raise over £55 billion by 2030-31.

We’re also paying more tax on our wealth. The number of estates that will be liable for inheritance tax (IHT) is expected to soar as the freeze to the nil rate band continues and unspent pensions become subject to the tax in 2027. Increasing numbers of investors are being caught out by capital gains tax (CGT) too, following swingeing cuts to the annual allowance (from £12,300 in 2022-23 to £3,000 today).

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It’s a pretty depressing outlook. But there are multiple allowances you can use to shelter your wealth, if you’re prepared to roll up your sleeves and embrace a bit of end-of-year tax planning.

1) Use your ISA allowance

Each year, you can pay up to £20,000 into ISAs to shelter your money from tax. There will be no tax to pay on interest with a cash ISA and no dividend tax or CGT to pay on stocks & shares ISAs either.

But it’s a “use it or lose it allowance”, so it’s a good idea to use as much of yours as you can.

You can spread your money across cash and stocks & shares accounts and hold multiple accounts of the same type (with the exception of Lifetime ISAs). The key is that the total amount you pay into ISAs over the course of the year doesn’t exceed your £20,000 allowance.

Although the limit for cash ISAs is reducing to £12,000 for under-65s, that change isn’t coming into effect until April 2027.

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It’s straightforward to pay cash into your ISA. But, if you have any investments in a trading account that could be subject to tax, you can move those into a stocks & shares ISA too.

By using the “Bed & ISA” process, it’s possible to sell your investments and immediately rebuy them within your ISA, where they will be sheltered from tax going forward.

ISA providers get very busy in the run up to the end of the tax year, but you can usually open or top up an existing ISA online, right up to the evening of 5 April. If you want to complete a Bed & ISA, it’s best to allow a few weeks as the process can take a bit longer.

2) Top up Junior ISAs

Children also have their own Junior ISA (JISA) allowance, worth £9,000 a year.

And again, money can be split between cash and stocks & shares JISAs (although they can only have one of each type).

JISAs work in much the same way as adult accounts; the key difference is that they won’t be able to access their money until their 18th birthday.

Some parents will want to limit the amount of money they save for their children in a JISA – as they’ll have no control over how the nest egg is spent – and will allocate some of their own ISA savings for their children instead.

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Nonetheless, if you have either used your ISA allowance already, or are confident that your children will spend the money wisely, it’s another helpful way of sheltering family finances from tax.

Once more, you’ll need to use this allowance or lose it, and you’ll be able top up or open a JISA right up until the final hours of 5 April.

3) Realise capital gains

If you’ve got investments that aren’t in a wrapper such as an ISA or pension, your gains could be subject to tax when you eventually sell.

But while everyone has a £3,000 annual exemption, you can only use it when you sell investments. One way to keep a lid on a growing tax bill, therefore, is to tactically realise gains, up to the allowance each year.

The 30-day rule prevents you selling investments and immediately rebuying them, but you can buy equivalent holdings or use it as an opportunity to diversify or rebalance your portfolio.

Another option, if you’ve got ISA allowance remaining is to carry out a Bed & ISA – selling gains up to your exempt amount and rebuying them in your stocks & shares ISA (see point 1). In addition to using your allowance, this also means your investments will be sheltered from tax in the future.

4) Pump up your pension

The end of the tax year is a popular time to pay into an ISA, so much so it’s dubbed “ISA season”. But it can also be a great time to top up your pension and make the most of your annual allowance.

Each year, you can normally pay 100% of your income, up to £60,000, into your pensions (including employer contributions on workplace schemes) and get tax relief on your contributions. This is called the annual allowance.

Just be aware that some people will have lower allowances.

For example, if you’re over 55 and have made a taxable withdrawal from your pension already, you will have triggered the money purchase annual allowance (MPAA) which will limit contributions to £10,000 a year.

Higher earners will also have a lower allowance. If your adjusted income (which includes employer pension contributions) is over £260,000, your allowance will be reduced by £1 for every £2 you earn over the threshold. This is the tapered annual allowance, which could reduce maximum contributions by up to £50,000 to £10,000 (when your adjusted income reaches £360,000).

But there are some circumstances where you can pay more than the annual allowance into your pension.

That’s because it may be possible to carry forward any unused allowance from the previous three tax years, to top up your contribution this year. You just need to make sure you’re not paying in more than 100% of your current annual income.

This can be particularly helpful for higher earners as well as the self-employed who may have a fluctuating income.

However, you can’t use carry forward rules if you have triggered the MPAA.

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Even though you won’t be able to access money you pay into a pension until you’re 55 (rising to 57 in 2028), tax relief provides a great incentive to top up your pot.

That’s because the government effectively repays the tax you paid on that money. As such, it costs a basic-rate taxpayer £800 to pay £1,000 into their pension, £600 for higher-rate taxpayers and £550 for additional rate taxpayers.

If you have an online self-invested personal pension (SIPP), you can normally top it up, right up to the final day of the tax year, but it’s important to check with your specific scheme.

5) Use your gifting allowances

If your family will face inheritance tax when you die, you can reduce the bill by giving away money during your lifetime.

Although you’ll need to live seven years for many lump sum gifts to be free of IHT (they are regarded by HMRC as “potentially exempt transfers”), there is an annual gifting allowance.

Each year everyone can give away £3,000 and that money will immediately be outside their estate for tax purposes. And, if you didn’t use the allowance last year, you can roll it over to this year.

This means married couples (and civil partners) that didn’t gift last year could give away as much as £12,000 between them before the end of this tax year, as well as a further £6,000 from 6 April. That move could get £18,000 out of their estate in a matter of weeks and save their families £7,200 in IHT.

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Although the allowance is not huge – and hasn’t increased with inflation since the early 1980s – if it’s used regularly over the course of your retirement, it could get a more substantial amount of money out of your estate.

IHT planning, however, can be complicated, so it’s always sensible to get professional advice before you start giving money away.