With the budget on 15th March 2023 and the end of the tax year fast approaching most pre year-end tax planning will have been completed or should be well under way. However, there may still be some measures which can be undertaken to improve your tax position.
Here are our top five tips to consider:
Top Five Tips
- Make full use of your personal income tax allowance and basic rate band and avoid the higher rates where possible. For higher earners the personal allowance is gradually withdrawn on income over £100,000, giving an effective rate of tax of 60% up to £125,140, so there is an added benefit of keeping income out of this bracket. For those falling into this tax band gift aid or pension contributions (subject to point 5 below) can be a tax efficient way of reducing income. From 6th April 2023 the additional rate threshold will be reduced from £150,000 to £125,140. This will result in taxpayers with income above £150,000 paying an additional £1,243 income tax. Therefore it may be worth considering bringing forward income into the 22/23 tax year.
- Make full use of your annual ISA investment allowance if you can. The amount which can be invested remains at £20,000 p.a. for 2022/23. Children under 18 can have a Junior ISA and invest up to £9,000 p.a, whilst those aged 18 to 39 can open a Lifetime ISA and save up to £4,000 p.a. Investment can be in cash and/or in stocks and shares, but any investment needs to be made by 5th April and if you do not use all the allowance it cannot be carried forward to future tax years.
- Ensure you have utilised your capital gains tax annual exemption, currently £12,300. If you have made gains in excess of this and hold an asset which has fallen in value, consider crystallising a capital loss. You need to take care, however, not to fall foul of the anti-bed and breakfast rules so contact us for advice before undertaking any transaction. Again any unused annual allowance is not available to carry forward. Please see Muras Matters issue 14 February 2023 for details of the forthcoming changes to Capital Gains Tax and the reduced annual exemption from 6th April 2023 onwards.
- Where possible, take advantage of the annual inheritance tax exemption of £3,000. The allowance can be carried forward for one tax year but will be lost if unused. In addition gifts which are ‘normal expenditure out of income’ can be made without limit. Such gifts must be made on a regular basis so action may be necessary before the year end to ensure a regular pattern is achieved.
- Ensure you have maximised your pension contributions if you are a Higher (40%) or Additional (45%) rate payer. Currently, higher and additional rate payers receive 40% or 45% tax relief on their pension contributions up to a maximum of £40,000 per annum, broadly meaning a £100 contribution only costs £60 (for higher rate payers) or £55 (for additional rate payers). The rules around pensions are complex and so specialist advice should be sought before finalising any contribution.
For those individuals who are owner shareholders of limited companies it may also be worth considering whether a dividend should be paid by 5 April 2023 or any proposed dividend brought forward as the dividend allowance will reduce from £2,000 to £1,000 from 6th April 2023. Currently dividend income above the £2,000 tax-free dividend allowance is taxed at 8.75% for a basic rate taxpayer, 33.75% for a higher rate taxpayer or 39.35% for additional rate taxpayers.
This is by no means an exhaustive list but merely some ‘quick fixes’. For a more tailored tax planning review please contact our Tax Director Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.