Are you ready for the end of the Tax Year?

We are fast approaching the end of the tax year on 5 April 2024, so it is a good time to review your finances and consider some tax planning. We have outlined below some tax reliefs and planning opportunities which could help reduce your tax bill.

Personal allowance and tax rate bands

For the 2023/24 tax year the personal allowance is £12,570 and the basic rate band is £37,700. You may want to consider transferring any income generating assets between spouses to ensure that together you utilise these rates and allowances, although this may now be more effective for future years.

If you are expecting your total overall income in 2023/24 to exceed £100,000, then remember that your personal allowance will be reduced by £1 for every £2 above the threshold, creating an effective tax rate of 60%. You may therefore want to consider additional pension contributions or charitable donations.

Pensions

Have you used your annual allowance for pension contributions? Under current rules you can claim tax relief for annual pension contributions of up to £60,000 provided you have sufficient earnings. However, be cautious if your total income and employer pension contributions exceed £260,000 as your annual allowance can be reduced to a minimum of £10,000.

Also, if you have unused allowances from the previous three tax years these can be carried forward and used in the current tax year. Any unused allowance from 2020/21 will be lost if not used by 5 April 2024.

You can also contribute up to £3,600 into a pension scheme for your spouse, or a child, and obtain basic rate tax relief.

Charitable donations

If you are feeling generous you may want to consider whether you want to make any qualifying gift aid donations by the end of the tax year. Not only will the charity benefit but if you are a higher rate taxpayer you can claim back the difference between the higher rate and basic rate tax on the donation.

Investments

• ISAs – have you fully utilised your ISA investment limit for the tax year? A standard ISA investment limit is £20,000 for the 2023/24 tax year, with a £9,000 limit on a Junior ISA.
• Personal savings allowance – depending on the rate at which you pay tax, certain amounts of bank interest will be taxed at 0%. If you are a basic rate taxpayer you will have an allowance of £1,000, or £500 if you are a higher rate taxpayer. Unfortunately, if you are an additional rate taxpayer this allowance will not be available to you.
• Dividend allowance – no matter what rate taxpayer, all individuals can receive dividend income up to £1,000 taxed at 0%.
• EIS/SEIS/VCT – these tax advantaged investments offer income tax relief of either 30% or 50% as well as other useful tax reliefs.

Capital gains tax (CGT)

For 2023/24 the capital gains annual exemption is £6,000. You may wish to crystallise gains up to this amount before 6 April 2024. You could also consider transferring assets to your spouse to enable their annual exemption to be utilised.

A reminder that the higher rate of CGT on disposals of residential property is set to reduce from 28% to 24% from 6 April 2024 so you might wish to push back an exchange of contracts to benefit from the lower rate.

Inheritance tax (IHT)

Individuals can make gifts of £3,000 of capital per tax year without any IHT implications, due to the IHT annual exemption. If the exemption was not utilised last year, it can be brought forward to this year meaning that £6,000 could be given away before the end of the current tax year.

Small gifts of up to £250 per person, to an unlimited number of persons, may be gifted, per tax year, and are also exempt from IHT.

You can make a gift of £3,000 and £250 to the same person in a tax year. In addition, you may also make gifts as ‘normal expenditure’ out of your taxed income.

Please let us know if you would like to talk to a specialist advisor about your tax saving strategy.