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Tax year end Planning

Income tax

For owner managed businesses, ensure you have fully utilised the dividend

allowance of £2,000 (where distributable profits are available) before the end of

the tax year.  The dividend allowance falls to £1,000 for the 2023/24 tax year and

£500 for 2024/25, and therefore it is beneficial to maximise these where possible.

If you pay tax as a higher rate or additional rate taxpayer, ensure you claim gift aid on any charitable giving, as the gift aid payments can be used to lift the thresholds at which you pay higher or additional rate tax.  Where one spouse pays tax at a higher rate than another, it is beneficial to ensure the gift aid is made in the spouse who pays tax at the higher rate.  There is no cap on the amount that can qualify for Gift Aid relief, provided the donor has paid sufficient tax during the tax year to cover the charity’s reclaim from HMRC.

The additional rate threshold will be reduced from £150,000 to £125,140 from 6 April 2023, which will result in taxpayers with income above £150,000 paying an additional £1,243 of income tax. Planning in respect of salary sacrifice pension contributions may be useful as this will reduce the income taxed and may bring this under the additional thresholds.  The annual pension allowance is increasing to £60,000 in 2023/24, which may assist with this planning.  Adding to your pension, helps save towards your retirement, while providing tax savings in the years contributions are made.

For taxpayers that have income over £100,000, you will start to loose the personal allowance (£1 for each £2 of income in excess of £100,000).  At an income level of £125,140 the personal allowance is completely lost.  Pension planning (as above may also be useful in this scenario).   

The carry forward rules allow unused annual pension allowances to be carried forward for a maximum of three tax years. This means that 5 April 2023 is the last opportunity to use any unused allowance of up to £40,000 from 2019/20.

Ensure you have utilised your annual ISA allowance, as the allowance cannot be carried forward.

Capital Gains Tax

The capital gains tax allowance falls from £12,300 to £6,000 from April 2023.  If you are thinking of selling an asset, it may be worthwhile bringing forward any disposal to maximise the use of the 2022/23 allowance. 

It may be beneficial transferring assets to your spouse or civil partner (under the no gain, no loss rules – there is no tax payable on transfers between spouses or civil partners), to utilise their annual exemption, if this has been unutilised.

 Inheritance Tax

Ensure you have fully utilised IHT reliefs and exemptions, such as the annual gifts exemption of £3,000 (£6,000 if no gifts were made during the previous tax year), the small gifts allowance of £250 per donee, and gifts made in consideration of marriage (£5,000 to children, £2,500 to grandchildren, and £1,000 to anyone else).

For further information or to discuss your individual circumstances, please contact us.

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