“This is a complex area as pensions are subject to a lifetime cap as well as potential restrictions for higher earners, so advice can often be useful.”
However, he noted: “There is a risk of future changes to this reasonably generous relief, meaning it is worthwhile considering taking full advantage of the current allowances now.”
Tax on savings income – share with a spouse
According to Mr Whatling, some individuals have a starting rate band of £5,000 for savings income, subject to the level of their total income, and £2,000 for dividend income in 2022/23.
Savings and dividend income falling within these bands is taxed at zero percent. Separate from the starting rate savings band, a personal savings allowance is available to basic and higher rate taxpayers but not to additional rate taxpayers.
The allowance is £1,000 per year for basic rate taxpayers and £500 per year for higher rate taxpayers.
Mr Whatling said that spouses and civil partners should review who holds any savings that generate taxable income to ensure these allowances and rate bands are utilised efficiently.
He added: “You should be aware though that the dividend allowance will halve from April 2023 to £1,000 and then halve again to £500 from April 2024.”
Make tax-free or tax-efficient investments
There are various tax-free and tax-efficient investments available, too and consulting with an expert can help decipher if any of these investments are suitable.
Mr Whatling said: “You can consider making tax-free investments through ISAs or National Savings. The annual ISA subscription limit for 2022/23 is £20,000, and this limit cannot be carried forward if not used.
“You can also consider Junior ISAs for children under 18 (£9,000 is the limit for 2022/23). Normally, income arising on funds given to children by a parent remains taxable on that parent if over £100 a year. As ISA income is not taxable, this allows you to give cash to your children without having to pay tax on the income generated.”
As well as cash ISAs, Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) investments may also provide tax relief and the opportunity to defer capital gains.
However, Mr Whatling noted: “These investments are considered high risk, and there is a risk of further changes to the schemes, potentially even at the March 15 Budget.”