Personal tax management – 5 planning tips before the year-end
Personal Tax Planning,
Expansion & Improvement
April will see the arrival of a raft of changes to individuals tax conditions. With the new tax year coming up, time is almost up to focus on maximising tax allowances and reliefs for you personally.
Optimising your personal and tax management
Changing rules on capital gains tax, dividends, ISAs, pensions and allowances mean that strategies need to be revised on a regular basis, not just in line with regulation, but also your investment goals. By making the most of the allowances available, business owners may be able to free up capital for personal or business use while ensuring that sufficient capital remains to achieve longer-term goals.
Capital gains tax
The tax free allowance for capital gains (annual exemption) will be reduced from £12,300 to £6,000 for gains made on sale of assets held personally from April 2023 and £3,000 from April 2024. This means that CGT will now be payable when people sell or pass certain items worth more than £6,000, such as property, equipment or shares held outside of an ISA or PEP.
If you're considering selling any assets, it might be worth doing so before the April deadline. Any savings you make from this will have to be balanced against any income or revenue generated from the asset.
For assets that are likely to continue to accrue value – and thereby be hit hard by the lower threshold in one to two years’ time - married couples (and civil partners) can sell or transfer assets between partners, tax-free. However, this tax planning strategy will likely be less effective in future tax years as a couple’s combined allowances are unable to produce the same level of tax savings as in 2022-23. This adds more urgency for couples to act now if there is scope to. For example, if a wife in a marriage has fully used her Annual Exempt Amount for 2022-23 but her husband (or civil partner) has not, then she could give some of her shares (or other non-ISA assets she wishes to sell) to them. She can then release up to £12,300 in capital gains without tax, assuming she does so before 5 April 2023 (after which the tax-free threshold goes down to £6,000 per year).
Tax-Free Allowance for Dividends
The tax-free allowance for dividends is set to decrease from £2,000 to £1,000. Business owners balancing their income between salary and dividends, if you have the scope for your company to pay an extra £1,000 before the end of March, it could be worth considering moving your payment forward.
Maximising your ISA Allowance
The ISA allowance for the current tax year remains at £20,000. If you have the means, now may be the last chance to sell non-ISA investments at a lower tax bill and move the capital into an ISA for tax-efficient storage. Here, any returns are protected by the ISA “wrapper”, allowing an individual to generate interest, capital gains and dividends without tax. For married or civil partnership couples, there is the option to use each other's ISA allowance, providing a combined allowance of £40,000.
Another consideration is using a Lifetime ISA. Designed for home purchase or retirement, this is one of the most favourable public investment options, allowing individuals to put in up to £4,000 every year and receive a 25% bonus from the government. Any interest earned on top of the bonus is tax-free, with bonuses paid every year until the individual turns 50. It can be opened by anyone aged between 18 and 39.
Pensions are a valuable tool to managing your personal – now could be the time to consider increasing your pension contributions, especially if you're on the brink of entering a higher rate band. Pensions can help you avoid the 40% rate and bring you into a lower rate band.
Investment Schemes, such as VCTs, EIS, and SEIS, offer a tax reduction of 50% in the year of investment and are eligible for waived CGT on disposal if they have been held for three years. For more information on investment schemes, check out our blog.
If your company runs a Payroll Giving scheme, business owners and employees can donate to charity straight from wages or pension, with the potential for tax reliefs of up to 80%.
Enter the new year with confidence
Keeping on top of changes in personal and business tax is our business – by making the most of allowance and reliefs available, you can ensure you have sufficient capital to meet your goals. With more changes coming up, there’s never been a more important time to ensure your tax strategy is up to date.
The right steps for your personal and business finances will vary depending on your revenue, goals and business profile – that’s why we make sure to understand everything about you and your business before we make our own recommendations.
If you want to find out how a personal tax strategy could help your business, get in touch.