News & Views

Use it or lose it…before the financial year end

28th February 2024

To be more accurate it should say use them or lose them as there are a number of government tax allowances that are available to everyone. You just need to know what they are and how they apply to you. It’s not always easy as the tax system is complex.



Why before the tax year end? Although it’s an arbitrary date, there needs to be a finite date so that all tax calculations can be made against for a full year. And if you don’t use your allowances in that financial year, then you can lose them. So, there is often a bit of a rush to get things done before then, but the truth is better financial planning would help alleviate this.


This article looks at one area where better planning could save you a lot in tax.


One reason this has become more of an issue recently is that while salaries have gone up, tax allowance bands haven’t moved in line with that increase, this is known as ‘fiscal drag’ which results in additional revenue for the Government but higher taxes for the individual. In fact, the Chancellor has stated that Personal Tax Allowances will now be frozen until April 2028. This means that more and more people will end up paying a higher rate of tax as their careers progress and they get paid more.


The current Personal Allowance is £12,570 and iIn Scotland the Higher Rate Threshold (HRT) is £43,663. There are an additional number of bands before and after the HRT as well which you need to know in case any increase in salary pushes you in to the next tax band.


For example, if you were earning less than £43,663 but above £25,688 you would be paying 21% tax, but as soon as you earn above that£43,662, then income above that would be taxed at 42% increasing to 47% for higher earners.


The Personal Allowance is also reduced by £1 for every £2 earned above £100,000, so a person earning £125,140 or over will have no Personal Allowance of £12,570 at all.


It therefore makes absolute sense to make sure that you are maximising your pension contributions which not only helps saving for your retirement but also can ensure you reduce your tax bill.


In the above scenario for example, if there was the capacity to put £25,140 into a pension scheme, it would reduce taxable earnings to £100,000 which would then reclaim the Personal Allowance of £12,570. The tax saving would be considerable:


Tax before contributions         £45,876

Tax after contributions           £30,038 = a saving of over £15,800 and £25,140 in your pension.


Of course, a person needs to be able to afford to do this, but while this example looks at the top end of earnings, the same logic applies across all tax bands.


As previously mentioned, there is a huge potential benefit in tax planning so that a person who understands what the implications are can use allowances to make tax savings so:


Act now before it’s too late, remember – Use it or lose it.


In the run up to the end of March, we’ll look at each in turn in more detail using the current HMRC figures for taxes, allowances and investments. Of course, you don’t have to wait until then if there is something that you would like to discuss now. Just use the link below if you want to get in touch. Book an appointment>>

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The above is for information only and does not constitute advice.