TTF Tackles the Money Monster Under Your Bed: "I Finally Saved a Lump Sum – But Am I About to Miss a Huge Tax Break?"

"For the first time in years, I find myself in an unfamiliar position—I have spare cash in the bank. Careful budgeting, cutting back on unnecessary expenses, and saying no to impulse purchases have finally paid off, leaving me with a lump sum that I never thought I’d see. It feels like a milestone, but now that it’s sitting there, I have no idea what to do with it.

I know one thing for sure: I don’t want it to just sit in my account, slowly losing value to inflation. I’ve read enough to know that there are ways to make my money work harder, whether that’s through tax-efficient savings, pensions, or investments. But with the tax year ending on April 5th, I feel like I’m running out of time to take advantage of any allowances or reliefs that might be available.

Should I be topping up my pension? Putting the money into an ISA? Are there any tax exemptions that could help me reduce my bill for this year? I don’t want to make a rushed decision, but I also don’t want to miss out just because I didn’t act fast enough.

The problem is, the more I research, the more overwhelmed I feel. The rules around pensions seem complicated, and I’m not sure if I’d be better off with a stocks and shares ISA instead. And then there’s the question of capital gains — if I invest now and later make a profit, will I get hit with another tax bill down the line?

This lump sum is an opportunity, but it’s also a responsibility. I just need some clear advice before the tax deadline closes in — because I worked too hard to save this money just to let it go to waste."

It sounds like you’ve done an amazing job of budgeting and managing your finances to have spare cash in the bank — it’s a great position to be in! With the end of the tax year fast approaching, there are definitely some smart moves you can make to ensure you’re making the most of available tax exemptions and reliefs.

One option is using your ISA allowance before April 5th. You can put up to £20,000 into an ISA, where it will grow free of income and capital gains tax. If you haven’t maxed out your allowance yet, this could be a great way to shield some of your savings from tax.

You might also want to look at pension contributions. If you contribute to a pension, you’ll get tax relief at your marginal rate, meaning higher-rate taxpayers can effectively turn a £100 contribution into £125 after tax relief. Plus, if you haven’t used up your annual pension allowance (£60,000 for most people), you can even carry forward unused allowances from the past three years to boost your contributions.

Another often-overlooked relief is inheritance tax gifting. If you’re thinking about supporting family members financially, you can gift up to £3,000 per year (or £6,000 if you didn’t use last year’s allowance) without it being subject to inheritance tax. Larger gifts can also be made, starting the seven-year clock for exemption, so it’s worth considering if this fits into your plans.

Another thought is that if you have investments outside of an ISA or pension, then capital gains tax (CGT) allowances could be relevant. The annual CGT exemption is now only £3,000, so if you have assets with unrealised gains, selling them strategically before the tax year ends could help minimise future tax liabilities. You could also consider transferring assets to a spouse to make use of their allowance.

There’s still time to take action before April 5th, but it’s getting tight! If you’re still unsure after reading this, seeking bespoke professional advice could help you make the most of these opportunities and ensure you’re in the most tax-efficient position possible.

Given all your hard work saving and managing your money, now’s the time to make sure your efforts pay off by making the smartest choices with your spare cash. Taking action now could make a real difference to your future finances—so don’t let the deadline slip by!

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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