As the end of the tax year is fast approaching, we outline below key points to consider when reviewing your tax affairs ahead of 5 April 2023. Any references to tax rates, thresholds and allowances are for the 2022/23 tax year unless specified otherwise.

This factsheet is for information purposes only and does not constitute formal tax advice. Each individual’s circumstances will be different and any year-end planning should be tailored accordingly. If you have any questions, please feel free to get in touch with your usual Barnes Roffe contact.

Income Tax

Personal Allowance

The standard personal allowance is currently £12,570. This is then reduced by £1 for every £2 of Adjusted Net Income (broadly an individual’s total income less available losses, charitable donations and pension contribution) in excess of £100,000.  At the point an individual’s Adjusted Net Income exceeds £125,140, the allowance is abated to nil.  In consequence, income between £100,000 and £125,140 is effectively taxed at 60%.

It may be possible to reduce Adjusted Net Income in order to preserve the personal allowance. This could be achieved in a number of ways depending on an individual’s circumstances, including by making pension contributions, gift aid donations or deferring income until the following tax year. 

Income Tax Rate Bands

The income tax rate bands remain as they were in previous years. The basic rate band is the first £37,700 of taxable income after your personal allowance. The higher rate band is any amount above the basic rate band up to £150,000 and the additional rate is for any income over £150,000.

Please note that from the 2023/24 tax year, the additional rate will be on any income over £125,140, the level at which an individual will have no personal allowance.

Marriage Allowance

If both you and your spouse are basic rate taxpayers, you may benefit from utilising the marriage allowance. This relief allows the lower earner to transfer £1,260 of their unused personal allowance to the higher earner. This reduces the higher earner’s tax liability by up to £252.

Personal Savings Allowance (“PSA”)

Savings income (primarily interest) covered by an individual’s PSA is taxed at 0%.  The level of PSA you are entitled to depends on whether you are a basic rate, higher rate or additional rate taxpayer:

• Basic rate taxpayers – the first £1,000 of savings income is covered by the PSA
• Higher rate taxpayers – the first £500 of savings income is covered by the PSA
• Additional rate taxpayers – are not entitled to a PSA.

If you are in receipt of savings income and have taxable income just above the basic or higher rate threshold (£50,270 and £150,000 respectively), you may wish to consider making a pension contribution or gift aid donation in order to increase the tax threshold and preserve your PSA.

Dividend Allowance

Individuals are entitled to a dividend allowance of £2,000. Dividends covered by the allowance are taxed at 0%.

Please note that from 6 April 2023, the dividend allowance will be reduced to £1,000 in the tax year. This will then be further reduced to £500 in the tax year from 6 April 2024.

Directors should consider declaring a dividend to utilise the tax-free allowance for their company’s shareholders, provided there are sufficient distributable reserves.

Child Benefit

If you or your spouse are in receipt of Child Benefit and either of you have Adjusted Net Income in excess of £50,000, the highest earner will be subject to the High Income Child Benefit Charge. The charge is 1% of a family’s Child Benefit for every £100 of Adjusted Net Income in excess of £50,000. If either parent has Adjusted Net Income in excess of £60,000, then the full amount of Child Benefit received will be clawed back via the High Income Child Benefit Charge.

It may be beneficial to reduce your Adjusted Net Income by way of making pension contributions or gift aid donations in order to preserve entitlement to Child Benefit.

Capital Gains Tax (“CGT”)

CGT Annual Exemption

Most individuals are entitled to a CGT annual exemption of £12,300. Capital gains of up to £12,300 on the disposal of assets (such as a property or shares) can therefore be earned tax-free each year. If the annual exemption is not used, it cannot be carried forward and is therefore lost.

If you are planning to dispose of an asset shortly before 5 April 2023 and have already made disposals in 2022/23 that utilise your annual exemption, you may wish to delay the sale into the following tax year to access the 2023/24 annual exemption.  Please be aware that the annual exemption will be reduced to £6,000 in the 2023/24 tax year.

There are valuable planning opportunities for married couples as transfers made between spouses are exempt from CGT.  For example, you can transfer individually held assets into joint names such that a future disposal of the asset would benefit from the application of two annual exemptions.

Claiming Capital Losses

Capital losses can be carried forward indefinitely and used to reduce future gains that might otherwise be subject to CGT. Such losses must be notified to HMRC within 4 years of the end of the tax year in which they are incurred (i.e. capital losses realised in the 2018/19 tax year must be claimed by 5 April 2023).

If you believe you may have incurred capital losses that were not reported in your tax return, you should inform your Barnes Roffe contact.

Inheritance Tax (“IHT”)

IHT Yearly Exemptions

The following gifts can be made annually without incurring a charge or potential charge to IHT:

For a married couple seeking to reduce the value of their estate for IHT purposes, it may be possible to remove £12,000 of value by 6 April 2023 by making use of the annual exemption for the current and following tax year.  This could result in potential IHT savings of £4,800.

Becoming Deemed Domiciled

After a non-domiciled individual has been resident in the UK for at least 15 of the previous 20 tax years, they will be regarded as ‘deemed UK domiciled’. This means that the individual is no longer able to benefit from the remittance basis of taxation and their worldwide income and gains will be subject to UK tax. In addition, a deemed UK domiciled individual will become liable to UK IHT on their worldwide assets.

If you are approaching your 15^th tax year of residency in the UK, you may need advice on how to shelter your offshore assets from UK IHT prior to becoming deemed domiciled.

Pensions

Pension rules can be complex. If you wish to make a pension contribution prior to the tax year end, we recommend that you first consult with your pension advisor.

Annual Allowance

Individuals get tax relief for pension contributions made personally or by their employer, subject to an annual cap of £40,000 known as the Annual Allowance.

For high earners, the Annual Allowance is tapered by £1 for every £2 of Adjusted Income (broadly, taxable income less allowances plus any personal and employer pension contributions) that exceeds £240,000. The minimum Annual Allowance available to any individual after tapering is £4,000.

An individual can generally make pension contributions equal to their Annual Allowance plus any unused Annual Allowances brought forward from the previous three tax years. If contributions exceed this amount, an Annual Allowance charge will be levied to clawback any tax relief obtained.

You may wish to consider making a pension contribution to utilise your available Annual Allowances and maximise tax relief. In particular, you should consider whether there is any unused allowance from the 2019/20 tax year as this will no longer be accessible after 5 April 2023.

Contributions on Behalf of Family Members with No Income

In addition to the Annual Allowance, tax relief for pension contributions is limited by an individual’s taxable earnings. This is subject to a minimum threshold where non-earners (or someone on their behalf) can make contributions of £2,880 per annum. After applying tax relief, the value of the contribution is effectively increased to £3,600.

You may wish to consider making the minimum annual contribution of £2,880 on behalf of family members with no earnings, such as children.

Tax-Efficient Investments

Individual Savings Accounts (“ISAs”)

ISAs are a tax-efficient way of investing as you pay no income tax on the resulting investment income and no capital gains tax on any investment profits.

To qualify for these benefits, there is an annual limit on how much an individual can contribute to an ISA.  For 2022/23, the maximum contribution depends on the type of ISA, as follows:

If you wish to contribute to an ISA prior to the tax year end to maximise your ISA annual allowance, we recommend that you first consult with your financial adviser.

Enterprise Investment Scheme (“EIS”), Seed Enterprise Investment Scheme (“SEIS”), Venture Capital Trusts (“VCTs”)

EIS, SEIS and VCTs offer tax reliefs to individual investors who subscribe for shares in certain qualifying companies. The key tax benefits of each scheme are summarised below.

While the above investments have numerous tax benefits, they are not without risk and there is the possibility that your investment could be lost.  Before considering whether to make such an investment, we strongly recommend that you first consult your financial adviser.