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Charitable gifting and other ways to reduce taxable income

With the tax year-end fast approaching, we’re sure that a couple of things are on your mind – reducing your 2023/24 tax bill and utilising allowances. It’s not too late to try and minimise your taxable income and maximise profit before 5th April 2024; there are a few ways to do this, with varying benefits to your finances.  

Whether donating to charity, topping up your pension, or maximising savings allowances available, let’s take a look at strategies to help you make some last-minute tax savings! 

1. Pension 

If you have maximised your tax-free personal allowance and dividend allowance, then why not add to your pension? You are entitled to receive tax relief on pension contributions up to £60,000 per year. If your pension is paid directly out of your wage, then it’s taken before tax is deducted – meaning that it’s subject to income tax relief.  

Meanwhile, if you make payments into your pension pot yourself (after paying income tax), then the provider will claim tax relief from the government at the basic 20% rate. To receive further tax relief in-line with the additional and higher rates, you would need claim it back on your Self Assessment tax return. Before making any extra contributions to your pension, we recommend that you speak to your financial advisor, so that they can advise you accordingly about whether it will obtain the optimal tax relief. 

2. Charitable gifting 

If you’re able to do so, then donating money to a charity or community amateur sports club (CASC) is not only a worthwhile use of your income, but it’s also tax free! If you’re a higher or additional rate taxpayer, then donating to charity through Gift Aid enables the charity to claim an extra 25p for every £1 you donate – you can then claim either 20% or 25% tax relief on the final donation total via Self Assessment.  

Alternatively, you may be able donate money through a payroll giving scheme. This way, your donation is taken out of your wage before income tax is deducted, reducing your taxable income. Although this is unlikely to reduce your 2023/24 tax bill, if you’re not already enrolled in a payroll giving scheme you may want to consider it going into 2024/25. It’s important to note that you cannot donate to CASCs through a payroll giving scheme, only to registered charities.  

3. Savings rate allowances 

Are you making the most of generous interest rates to use your personal savings allowance? Each tax year, basic rate taxpayers are entitled to earn £1,000 of interest tax-free, and higher rate taxpayers are entitled to £500 tax-free interest. Additional rate taxpayers, on the other hand, aren’t entitled to a personal savings allowance.  

4. IHT gifting allowance 

If you’re thinking about giving away money or possessions, then you may want to do it before the 5th April to take advantage of the tax-free gifting allowance. Individuals are entitled to a £3,000 annual exemption, which can be used to give away a total of £3000 worth of gifts each year without them being added to the total value of your estate (and therefore incurring inheritance tax).  

You can also give gifts to relatives who are getting married, with the following allowances: 

  • £5,000 if your child is getting married 
  • £2,500 if your grandchild or great grandchild is getting married 
  • £1,000 to anyone else.  

These allowances can also be combined with the £3,000 tax-free gifting allowance. 

Each year, you can also give gifts of up to £250 to as many people as you want, without them being added to the value of your estate, as long as you haven’t used one of the other two allowances to give them a gift.  

5. ISAs 

If you haven’t already used your full ISA allowance for 2023/24, then this could be an option to consider maximising your tax-free savings. There are four different ISAs; cash ISA, stocks and shares ISA, innovative finance ISA, and Lifetime ISA. For 2023/24, the ISA allowance is £20,000, which can be saved across one of each type of ISA! It’s important to note, though, that the Lifetime ISA has a maximum allowance of £4,000 each year.  

For further guidance about how best to minimise your taxable income and make the most of the allowances available, please don’t hesitate to reach out to a member of our team on 01942 816512 or email:   

Chris Barlow, Tax Manager: [email protected]  

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