Strategic Tax Planning for the 2023/24 Financial Year: Maximising Savings as the Deadline Approaches

Start your year end tax planning early!

As the conclusion of the 2023/24 tax year approaches, 5 April 2024, you have the opportunity to potentially allocate your income, gains, or tax reliefs to a specific tax year. This decision can significantly influence your tax liabilities, determining the amount you owe and the timing of your payments.

INCOME TAX PLANNING

As the tax year draws to a close, strategic management of income becomes pivotal. Proactively adjusting income close to specific tax thresholds can significantly impact one’s tax liabilities. For instance, individuals hovering around the income tax thresholds might consider employing various strategies. These include making additional pension contributions or charitable donations to reduce taxable income. Moreover, it’s essential to take advantage of the £12,570 personal allowance, especially for family members with no taxable income.

Notably, income falling within the £100,000 to £125,140 range needs careful consideration. In this bracket, the personal allowance diminishes by £1 for every £2 over £100,000. Additionally, the reduction of the 45% additional rate threshold from £150,000 to £125,140 as of 6 April 2023 means that salary increments or bonuses received this year might push some individuals into a higher taxable bracket. HMRC also mandates for all individuals who earn over £100,000 to file an annual self-assessment to ensure the correct restriction of their personal allowance.

PENSION CONTRIBUTIONS TAX PLANNING

Pension contributions offer an avenue for income tax relief and strategic planning. Leveraging the £1,073,100 lifetime allowance for pension savings in the 2023/24 tax year remains pertinent, given the freeze at this level until the 2025/26 tax year, subject to the current government’s policies.

There are two types of pension contribution, pre and post-tax contributions. Understanding the nuance differences can enable individuals to reap the benefits associated with a pension contribution.

At present, individuals can contribute up to £60,000 gross into a pension scheme, although this allowance may be reduced for those with an adjusted income exceeding £260,000.

The benefits of post-tax contributions lie in that a gross contribution of £60,000 requires only a £48,000 personal payment, due to the fact that the pension payment is ‘grossed up’ when calculating relief.  In addition, such donations can augment the basic rate threshold potentially adjusting the amount of higher rate tax payable by an individual.

The benefits of pre-tax contributions are the ability to more effectively manage gross income earned. This is especially useful for those individuals close the threshold for repayment of child benefit and the restriction of personally allowances.

DIVIDEND INCOME TAX PLANNING

From 6 April 2023, the dividend tax-free allowance saw a significant reduction from £2,000 to £1,000, with a further decrease £500 in 2024/25. This shift directly impacts tax-planning strategies. Understanding the tax rates on dividend income, which vary for basic, higher, and additional rate taxpayers, becomes crucial.

NATIONAL INSURANCE TAX PLANNING

Recent announcements regarding national insurance contributions warrant attention. Effective from 6 January 2024, employment income between £12,570 and £50,270 will see a decrease in employees’ Class 1 National Insurance from 12% to 10%. Additionally, from 6 April 2024, significant changes will be observed for the self-employed, with Class 2 being abolished and Class 4 reducing from 9% to 8% on earnings between £12,570 and £50,270.

CAPITAL GAINS TAX PLANNING (CGT)

Effective from 6 April 2023, the annual exempt amount for individuals and personal representatives was reduced to £6,000, with a further decrease to £3,000 in 2024/25. This change prompts individuals to consider potential loss claims, especially for assets like shares in companies that might have become of negligible value, such as those undergoing administration.

Furthermore, for shares subscribed in unlisted trading companies, individuals might be eligible for income tax relief. However, careful consideration and adherence to specific regulations are necessary.

It’s essential to note that for non-UK domiciled individuals remitting more than the annual exemption amount, it may be worth a reassessment of remittances. Additionally, compliance with the 60-day reporting and payment deadline after selling UK residential property remains crucial.

Moreover, disposals leading to a controlling interest in a company held by an employee ownership trust enjoy exemption from CGT, aligning with certain strategic ownership arrangements.

INHERITANCE TAX PLANNING (IHT)

The IHT landscape remains somewhat in the air with the will they won’t they scrap it!  

However, this is a fairly stable area of tax, with the nil rate band fixed at £325,000 until 2027/28 and, the residence nil rate band (RNRB) remaining at £175,000, with the RNRB taper applicable for estates exceeding £2 million.

Understanding exemptions for lifetime gifts, especially the seven-year survival rule for gifts, remains crucial. Certain annual allowances, such as the £3,000 annual gift allowance (which can include any unused allowance from the preceding year) and £250 gifts to multiple recipients, serve as key gifting strategies.

Notably, assets that appreciate in value following a gift can potentially save IHT, even if the donor passes away within seven years. However, such gifts might trigger Capital Gains Tax (CGT) liabilities.

INDIVIDUAL SAVINGS ACCOUNTS (ISAs)

It is worth looking at tax planning around ISAs. ISAs continue to offer tax-efficient investment avenues, providing shelter from tax on income and gains within specific limits. The annual investment limit for this tax year stands at £20,000, catering to various savings and investment goals. Additionally, specific allowances for junior ISAs (JISAs) and child trust funds (CTFs) remain at £9,000.

Understanding the nuances, benefits, and limitations of ISAs, including the potential for a surviving spouse or civil partner to claim an additional allowance equal to the value of a deceased partner’s ISA holdings, becomes paramount in strategic financial planning.

Don’t leave taking advantage of these tax-saving tips until the last minute. Book a consultation call with one of our advisers to start your year-end tax planning now!

If you are looking for a business review and want to chat about how you can put steps in place now for the end of the tax year. Contact a member of the team for a tax planning review and follow up email for £500+VAT contact us today!

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