How tax on savings and gains changes this month

With only a few hours to go before the end of the 2023/24 tax year the window for using your tax-free savings allowances is shrinking fast.

But don’t worry – a brand new set of shiny tax allowances will be waiting for you tomorrow morning. Across the main tax-efficient savings options – ISAs and pensions – it is now possible for an adult to shield £80,000 each year from tax – £60,000 into a pension (or 100% of their earnings, whichever is highest) and £20,000 into an ISA – assuming they are not subject to any restrictions on their allowances.

And there are also tax-allowances that children can use, with £9,000 able to be contributed to a Junior ISA and £3,600 allowed within a pension for a child. 

Taken together, a family of four could shelter £185,200 a year, meaning any investment gains made on that money would be tax-free. ISA money is then available without tax applying while 25% of pension money is available tax-free (subject to some restrictions) and the rest subject to Income Tax, with tax relief potentially applying on contributions. You can find a full breakdown of how tax on pensions works here.

This amount far exceeds what most families can save for the future, of course, but it shows how – for those able to take advantage – the savings system can be generous.

And it is important to take the maximum advantage of tax-free allowances where you can because other elements of the savings tax system are getting less generous.

Here’s a breakdown of the tax changes affecting savers in the new tax year – both positive and negative.

Dividend Tax

The dividend tax allowance is set to decrease further from £1,000 to £500 on 6 April and will affect individuals earning dividends on investments held outside of tax wrappers that surpass the new, smaller allowance. The allowance was £5,000 as recently as 2018. The amount of tax you pay on dividends above the allowance will depend on your Income Tax band with basic rate taxpayers paying 8.75% tax, higher rate payers paying 33.75% and additional rate payer paying 39.35%.

Capital Gains Tax

Investors will also need to consider changes to their Capital Cains Tax (CGT) allowance, which is dropping from £6,000 to £3,000 in the new tax year. This is the amount of gains you can realise before Capital Gains Tax applies. The allowance has shrunk dramatically in just a few years, falling from £12,300 in 2022/23.

If you pay higher-rate tax CGT will be charged at 20% for most chargeable gains – such as those on stocks and shares investments – but at 24% for chargeable gains on residential property (outside of your main residence). For basic rate taxpayers the rate is 10% (18% for residential property) on gains falling within the basic-rate band.

Lifetime Allowance abolished

The pension Lifetime Allowance (LTA) will be abolished from 6 April, over one year after the Chancellor announced the plans at the 2023 Spring Budget. The LTA currently sits at £1,073,100 and will be replaced by a Lump Sum Allowance and a Death Benefit Allowance.

The Lump Sum Allowance will be set at £268,275 and is the tax-free lump sum limit people can take from their pension, and the death benefit allowance will be set at £1,073,100. The new allowances boost the tax-efficiency of pension savings over a lifetime. The maximum amount people can save into pensions each year without paying a tax charge increased from £40,000 to £60,000 for the 2024-25 tax year.