What does the end of the tax year mean for investors?

When does the tax year start and end in the UK? 

The 2023/24 tax year started on 6th April 2023 and runs until Friday 5th April 2024.  

The UK’s tax year runs at a different time compared to many other countries (which align their tax years to the traditional January to December calendar). The UK tax year has been tied to April since the year 1800, though the origins of this choice go back even further to the Middle Ages and the  ‘Lady Day’ religious festival. 

Why is tax year end important? 

History lesson to one side, it’s important that you’re aware of the 5th April deadline.  

After this date, many of your annual tax allowances reset, including the amount you can contribute to an ISA, and how much you can earn tax-free in capital gains or dividends.

This makes tax year end an important time for investors – it’s a period where you can make the most of your remaining annual allowances, the benefits they come with (such as tax-efficient returns and, in some cases, government bonuses) and the positive impact they can have on your long-term investments.  

Which products have annual allowances? 

ISAs,  Junior ISAs (JISA),  Lifetime ISAs (LISA)  and  pensions are all subject to annual allowances. This means you can save or invest up to the annual allowance in a given tax year and there may be tax benefits for doing so, although both the allowances and the tax benefits depend on your personal circumstances and may be subject to to change in the future.

A general investment account (GIA)  may be subject to dividend or capital gains tax where the returns exceed the annual dividend and capital gains tax-free allowances – there’s more information on these tax allowances below.  

Here at Nutmeg, we don’t offer cash ISAs. But if you have a cash ISA or indeed any other type of ISA with another provider, any contributions you make over the course of the tax year will still contribute to your overall allowance.   

What is the annual allowance for an ISA?  

£20,000. 

This is the total amount you are allowed to  put into ISAs in the 2023/24 tax year  (this could change in later years.) So, whether you are saving with a cash ISA, or investing in a stocks and shares ISA, a LISA, or an innovative finance ISA, the maximum contribution is £20,000 for that tax year.  

For the 2023/24 tax year, you can open and pay into one of each type of ISA each year, but your cumulative contributions in ISAs must not be above £20,000. This annual allowance will remain in place for the 2024/25 tax year, starting 6th April, though rules around ISA flexibility are changing.

As announced in last year's Autumn Statement, from 6th April investors and savers will be able to open more than one of each type of ISA in any tax year (cash, stocks and shares, or innovative finance). There will also be a relaxation of rules to allow partial transfers of ISA funds in-year between providers. Please consult your ISA providers to understand how this may work in practice. 

Remember, as with all investing, your capital may be at risk. Tax treatment depends on your individual circumstances and may change in the future

What is the annual allowance for a Lifetime ISA?  

£4,000 (as part of your £20,000 ISA allowance). 

This is the total amount you are allowed to put into a LISA for the 2023/24 tax year. The government will add a further 25% to anything you add within the tax year. So, if you maximised your LISA allowance and added the full £4,000, the government would then add a further £1,000 (25%) to bring it up to a total of £5,000. 

Note, you can only open a LISA if you’re aged 18-39, and you can use it for two purposes: working towards your first home (valued at £450,000 or less) or your retirement at age 60. Withdrawals outside of these conditions can incur a charge. 

It’s important to remember that whatever you put into a LISA counts towards your total £20,000 allowance for ISAs for the year. If you put £4,000 in a LISA, you will have £16,000 left to contribute to other ISA types for that tax year. 

Please note, that if you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. Your current and future entitlement to means-tested benefits may also be affected.

You can read more about the LISA’s benefits for first-time buyers in our blog, Is the Lifetime ISA still a good deal for homebuyers? 

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest.

What is the annual allowance for a Junior ISA?

£9,000.

Parents or guardians are allowed to invest £9,000 per year for each child in a JISA without paying tax on the growth, and this does not affect your £20,000 ISA allowance as the money belongs to the child in whose name the JISA has been set up.

Once opened by a parent or guardian, other family and friends can then contribute to the JISA. However, note that the money cannot be accessed until the child turns 18, at which point it belongs to them. 

As with all investing, your capital is at risk. Tax rules subject to individual status and may change.

For more information on JISA's, check out our blog: What are the best ways to invest in your child's future? 

What is the annual allowance for a pension? 

£60,000 (maximum). 

The  government gives you tax relief on your pension contributions. This relief applies to 100% of your earnings, or the government set annual allowance which is currently £60,000 – whichever is lower. However, this annual allowance amount is subject to tapering if you’re a very high earner.

If you’re a basic rate taxpayer, contributions to your workplace or personal pension benefit from 20% tax relief. This means that every pound in your pension only costs you 80 pence, with the other 20p coming from the basic rate of income tax you would have paid. Instead of HMRC receiving that tax, it goes straight into your pension pot.

If you are a higher-rate taxpayer, you can claim a further 20% tax relief and if you’re an additional-rate taxpayer, you can claim an extra 25% via your tax return. 

More details around tax relief can be found in our recent blog, Understanding tax relief on pensions - are you missing out? 

Remember, your tax relief counts towards your total pension contributions and therefore affects your annual allowance. So, don’t forget to factor this in when you’re calculating how much to put into your pension each year.  You can normally only access your pension from age 55 (57 from 2028).

Unlike an ISA, you can still contribute as much as you want beyond the pension allowance, but you’ll be liable to pay tax on any amount over the contribution limit. This is called an ‘annual allowance charge’, and it will be added to the rest of your taxable income for the year when your tax liability is calculated. Importantly you may also be able to carry forward any unused pension allowance from the previous three years.  

If you live in Scotland, the tax relief rates work differently. 

If you’d like some help understanding how best to maximise your allowances, you can book a call with one of our experts, who’d be happy to provide you with free financial guidance.  However, please note that Nutmeg cannot give tax advice, and so you may wish to speak with a specialist about tax allowances. 

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.

Read our blog, Will your pension pot be big enough to retire at 55?

What is the annual allowance for a general investment account? 

£0 

GIAs are not designed with tax protection in mind - any income you earn from them is subject to tax. That’s why investors often use up all of their annual ISA allowance first. Once you’ve reached your ISA limit for the tax year then a GIA can be a good way to invest beyond that, though your GIA returns may then be taxed.

What happens if I miss the end of the tax year deadline? 

Most of your tax allowances will reset at the end of the tax year so that any unused portion of your allowance can’t be used in the new tax year. Therefore, if you have money that you are planning on putting away into an ISA, Lifetime ISA or Junior ISA, you may want to do this before the deadline. Pensions are the exception to this, where you may be able to carry forward some of your unused pension allowance into the new tax year.  

What happens at the end of the tax year? 

After the 5th April deadline, the new tax year begins and your allowances reset. This means you can continue investing into the same ISAs from last year, and open new ISAs as well. 

How much tax do investors pay?  

It depends which wrapper you are using and your personal circumstances.

If you invest in ISAs and pensions using the annual allowance, returns are not subject to tax.  

If you invest in a General Investment Account or elsewhere, you could be subject to capital gains tax or dividend tax if you exceed the annual tax-free allowances (see below for more information).  

Capital Gains Tax (CGT) 

If you invest outside of an ISA or pension, you could be subject to CGT on any capital gains you make. Capital gains are the profits you make when you sell or dispose of an asset like stocks and shares, a second home, a painting, or a business. CGT is paid only on the increase in value of the asset you’re selling, not the overall value of the asset.  

Everyone has an annual CGT allowance, and you can make capital gains up to this threshold without having to pay CGT.

For the 2023/24 tax year, the allowance is £6,000. However, from 6th April this will halve to £3,000 for the 2024/25 tax year, meaning it makes even more sense to make use of available tax wrappers, such as ISAs, that may shield you from paying this. 

Tax on dividends 

You do not pay tax on any dividend income that falls within your personal allowance or your dividend allowance (note, dividend allowance is in addition to your personal allowance). However, those investors who own shares or receive dividends outside of a tax wrapper like an ISA or a pension may be subject to taxes. 

You can receive dividends up to the annual dividend allowance without having to pay tax. The annual allowance for 2023/24 is £1,000, and this will halve to £500 for the 2024/25 tax year, starting on 6th April.  

How much dividend tax you pay depends on your Income Tax band. If you are a basic rate taxpayer, your dividend tax rate is 8.75%. If you’re a higher rate taxpayer, it’s 33.75%. If you’re an additional rate taxpayer, it’s 39.35%.  

How does tax year end differ if you’re self-employed?  

If you are self-employed, you’ll need to file an online Self Assessment tax return and pay any tax you owe by 31 January. You can claim tax relief on money you put into a private pension –20% of any income you have paid 40% tax on, and 25% of any income you have paid 45% tax on.  

You’re still entitled to the £20,000 annual ISA allowance.  

What should I do before tax year end?  

As the tax year end approaches, there are a few things investors should have on their checklist.  

• Review your contributions into your ISAs or pensions this year, and check how much allowance you have remaining  
• Consider whether you’d like to top up your ISAs or pensions. You don’t have to maximise the allowance for it to make a difference: the more you have invested, the more you can benefit from compounding on any potential growth and not having to pay tax on any returns. If you can afford it, you should aim to always be saving or investing towards your goals – a little top up now could make a sizeable difference over time.  
• Consider ‘drip feeding’ future contributions. If you have money to invest, but aren’t ready to put it into the markets all at once, our 100% cash pot feature works by connecting up two Nutmeg pots with a monthly transfer. So, you’ll need two pots – one will be a cash pot, and the other will be an investment pot. It’s all about contributing smaller amounts on a regular basis, which buys you into the markets during the various ups-and-downs, meaning you’re less exposed to short-term market movements.
• Ask for help if you need it. The tax year end can be a busy time, and tax can be complicated. Our mission at Nutmeg is to make investing as easy, accessible, and transparent as possible. If you need a helping hand, or would like to speak to someone, our friendly team of experts are here. However, please note that Nutmeg cannot give tax advice, and so you may wish to speak with a specialist about tax allowances. 

I’m still not sure about tax year end  

Whether you’re an experienced investor or just looking to begin your investment journey, our team of experts are on hand  to guide you through the end of the tax year and any other questions you might have. 

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A pension may not be right for everyone and tax rules may change in the future. If you are unsure if a pension is right for you, please seek financial advice

A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice. 

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may change in the future.

If you need to withdraw money from a Lifetime ISA before you’re 60, and it’s not for a qualifying purchase of a first home, you’ll generally pay a 25% government withdrawal charge. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. Your current and future entitlement to means-tested benefits may also be affected. If you are unsure if a Lifetime ISA is right for you, please seek financial advice. 

To open a Nutmeg JISA, your child must be under the age of 16 and funds cannot be withdrawn until your child turns 18. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure if a Junior ISA is the right choice for you and your child, please seek financial advice.