Personal tax planning before the end of the tax year is important to ensure you make the most of tax reliefs and allowances.

Despite there not being many changes to tax rates and reliefs in the Autumn Statement 2023, there are still opportunities to save tax by wisely using tax reliefs and allowances. So, working with your accountant on year end tax planning could save you significant amounts of tax and allow you to keep more of your hard earned money.

This blog offers advice on just some of the opportunities you could consider. It contains ideas affecting income and investments.

Income tax saving opportunities

Personal allowance

Everyone should make sure they use their tax free allowances. The personal tax allowance allows you to earn £12,570 tax free in 2023/24, and this allowance is frozen at this level until 2027/28.

For couples, if either spouse or a civil partner will not be able to use their personal allowance for 2023/24, then claiming the marriage allowance will save the other spouse or civil partner up to £252 in tax. However, a claim can only be made if the recipient does not pay tax above the basic rate

Income

The personal allowance is withdrawn where income (less certain deductions) is more than £100,000.

Income over £125,140 is currently taxed at 45%, or 47% for non-savings, non-dividend income in Scotland.

Bringing forward income could be a sensible approach if you are not currently an additional rate taxpayer but expect to become one next year.

If your income is less than £100,000 this year but is expected to exceed that figure next year, you could bring forward income into 2023/24 to avoid the additional or top rate next year.

Conversely, if your income will fall below £100,000 in 2024/25, you might be able to avoid the additional or top rate of income tax this year by delaying a bonus until after 6 April 2024.

You might be able to reorganise both your financial affairs to avoid exceeding one of these limits. However, capital gains tax (CGT) may be payable on switching ownership of an investment if you are not married or in a civil partnership.

The director/employee tax planning approach around income levels applies equally to people who are self-employed. If you are self-employed, you might be able to affect the timing of your taxable profits to avoid paying tax at 45% (47% in Scotland), but this will depend on your accounting date.

Dividends

You can receive £1,000 of dividends tax free in 2023/24 regardless of your tax status. Reorganising your shareholdings between you and your partner may make better use of this limit. The dividend allowance will be reduced to £500 next year.

If you are the owner of a limited company, it would be wise to ensure you make use of the dividend tax-free allowance for 2023/24.

Similarly, if you are a higher rate taxpayer and may become an additional rate taxpayer in 2024/25 (or Scottish top rate taxpayer), you could bring forward a dividend to avoid the additional rate (or Scottish top rate) next year.

This could also help if the income falls into the basic rate band this year (or Scottish starter, basic or intermediate rate bands). But you should avoid bringing forward a dividend if it is more likely to fall into a higher band this year than next year.

You could even give shares to your spouse or civil partner shortly before paying a dividend if they pay tax at a lower rate than you, provided you genuinely transfer ownership. It is advisable to leave as much time as possible between the gift and the subsequent dividend payment.

Partners salary

You could pay an otherwise non-earning partner a salary, on which you will get tax relief. You normally must keep PAYE records even if the salary is below the national insurance contributions limit, which is £533 a month in 2023/24.

If, however, the salary is between £533 and £1,048 a month, your partner will avoid paying any employee NICs, but will still qualify for state benefits. A small amount of employer NICs will be payable if the salary exceeds £758 a month.

Note: If you pay your partner a salary, it has to be commensurate with services they perform for the company.

Savings and investments

Individual Savings Accounts (ISAs)

You can currently invest in one cash ISA, one stocks and shares ISA and one innovative finance ISA in each tax year. This is set to change from April 2024.

ISAs are free of UK tax on investment income and capital gains. If you are aged 18 to 39, you can also invest up to £4,000 in a lifetime ISA. However, the maximum investment limit of £20,000 (for 2023/24) applies across all four types of ISA.

Parents and others can contribute to a Junior ISA for children up to 18 who do not have a child trust fund. The contribution limit is £9,000 in 2023/24.

If our partner has little or no earnings or pension income, you might also benefit from a 0% tax rate on up to a further £5,000 of savings income. Again, shifting assets between you can help minimise tax on your savings income.

Pensions

The tax privileges of investing in pension plans make them a key focus in tax planning. Pension funds are broadly free of UK tax on their capital gains and investment income. When you take the pension benefits, up to a quarter of the fund is normally tax free, but the pension income will be taxable.

There is an annual limit of £60,000 on pension contributions that qualify for tax relief, although it is tapered down to a minimum of £10,000 if your income exceeds £260,000. You can, however, carry forward unused annual allowances for the past three tax years to offset against a contribution of more than the annual limit. For individuals already drawing a flexible income from a pension, the annual allowance is also £10,000

The annual allowance was left untouched in the Autumn Statement of 22 November 2023, but a future reduction in tax relief for pension contributions remains a possibility. You might want to maximise your pension contributions for 2023/24 by making further contributions before 5 April 2024.

The total value of your pension savings are subject to a Lifetime Allowance (LTA), currently £1,073,100 for 2023/24.

You could set up a pension for your partner or children since they don’t need earnings to build up to £3,600 in a personal pension. Even if they do not pay any tax, they can still benefit from 20% tax relief.

You can also pay an employer’s pension contribution to your partner’s personal pension scheme. There are no taxes or NICs on the payment itself, and it should be an allowable business expense. However, the total value of your partner’s salary, benefits and pension contributions must be justifiable in relation to the work performed.

Lifetime allowance

Lifetime allowance There is no longer any limit to the amount you can hold in a tax-favoured pension scheme without triggering an extra tax charge. However, all tax-free lump sums, including death benefits, are still tested against a lifetime limit set at £1,073,100.

The combination of tax relief on contributions, tax free growth within the fund and the ability to take a tax-free lump sum on retirement makes a pension plan an attractive savings vehicle, the more so since the abolition of the lifetime allowance.

Capital Gains Tax (CGT)

Everyone has an annual CGT exempt amount, which in the 2023/24 makes the first £6,000 of gains free of tax. For 2024/25, this amount will be halved to £3,000.

Most gains above the exempt amount are taxed at 10%, where taxable gains and income are less than the non-Scottish basic rate limit of £37,700 in 2023/24.

The rate is 20% on gains that exceed this limit. Residential property gains are taxed at 18% and 28%.

You should aim to use your annual exempt amount by making disposals before 6 April 2024. If you have already made gains of more than £6,000 in this tax year, you might be able to dispose of loss-making investments to create a tax loss. This could reduce the net gains to the exempt amount.

CGT is normally payable on 31 January after the end of the tax year in which you make the disposal. You could therefore delay a major sale until after 5 April 2024 to give yourself an extra 12 months before you have to pay the tax.

Timing your disposals is particularly important if disposals in this tax year have already resulted in a net loss. Depending on the level of your income, making a further disposal either side of the tax year end could save or cost you tax.

Inheritance tax

Inheritance tax (IHT) planning is not necessarily related to the tax year end, although this is as good a time as any to review your will and ensure your stated wishes are up to date.

There are, however, certain IHT exemptions that are related to the tax year.

Gifts totalling up to £3,000 in a tax year are exempt from IHT. If you didn’t use this exemption in 2022/23, you can make IHT-free gifts of up to £6,000 before 6 April 2024. If you have already used your exemption for 2023/24, you could delay your next gift until after 5 April 2024 to take advantage of the 2024/25 exemption.

Gifts of up to £250 to any person in any one tax year are exempt. You can use this exemption for any number of different recipients.

Regular gifts out of excess income can also be exempt, with the amount of excess income determined each tax year. You need careful documentation to prove that you make the gifts from income rather than capital.

Gifts to charity are free of IHT, so remembering a charity in your will can reduce the total amount of IHT that will be paid on your estate.

Charitable giving

You make the gift out of your taxed income and the charity can claim back basic rate tax on the value of the gift.

Higher and additional rate taxpayers can claim an extra 20% or 25% in relief.

Intermediate, higher and top rate taxpayers in Scotland can claim an extra 1%, 22% or 27% in relief.

You can obtain both income tax and CGT relief on gifts to charities of shares listed on the stock market and certain other investments.

Gifts to charity are free of IHT, so remembering a charity in your will can reduce the total amount of IHT that will be paid on your estate.

Summary

As a business owner, careful tax planning before the end of the tax year should be part of your wider financial plan and help you to achieve your financial goals.

At Barnes Roffe we focus on ensuring our clients are tax efficient and by maximising their use of tax allowances and reducing their tax liability.

For more detailed information on year end tax tax planning 2023/24 download our guide.

Contact us today if you need more help and advice on tax planning.

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