Personal Tax Planning for the end of the Tax Year

As we approach the end of the tax year, it is worth setting some time aside to consider whether you are taking advantage of all available individual allowances, reliefs, and exemptions. Before they expire on 6 April 2024, read our simple guide below to ensure that no allowance goes to waste.  We are keen to make sure our clients pay as little tax as possible!

Pension Annual Allowance

An individual can claim tax relief on contributions to their personal pension pots, although there are some annual contribution limits.  The maximum pension allowance for the 2023/24 tax year is £60,000 (although this is capped at an individual’s ‘earned income’).  For those with high levels of income, the annual allowance could be reduced.  Pension contributions attract basic rate tax relief at source, but extra tax relief can be claimed by higher and additional rate taxpayers.

Any unused annual pension allowances from the previous three tax years can be carried forward, giving rise to potential accumulated maximum allowances of £180,000 for the 2023/24 tax year. You must have been a member of a pension scheme in all of the three previous tax years for this to apply. If you do have unused allowances carried forward from 2020/21, it would be very wise to consider using them now as they will be lost at 5 April 2024.

Personal Allowance 

UK resident individuals with income less than £100k per year are entitled to a tax-free personal allowance of £12,570. If you or your spouse has income below this level, you may wish to consider moving some income producing assets between yourselves, to ensure you are both using your full allowances.

For individuals with income exceeding £100k your personal allowance is reduced. Unfortunately, this means that the effective rate of tax on your income between the £100,000 – £125,140 range can be up to 60%. Making personal pension contributions and gift aid charity donations can help reduce the tax burden for income falling between these thresholds.

Marriage Allowance 

If you’re married or in a civil partnership, check if you qualify for the marriage allowance -it could save you £252 annually and can be backdated for 4 tax years.

To qualify, one partner must earn below the £12,570 personal allowance, and the other must only pay basic-rate income tax. The lower earner can transfer £1,260 of their personal allowance to their partner annually.

Boosting your State Pension

Currently, you are required to have attained 35 qualifying years of state pension credits in order to receive your full UK state pension and 10 qualifying years in order to receive any state pension at all. Those individuals below 35 years who would like to top-up, can do so through voluntary National Insurance payments but usually only for the previous 6 tax years. However, you currently have until 5 April 2025 to make voluntary contributions for the tax years 2006/07 onwards.

ISA Allowances  

ISAs are a tax-efficient saving option due to their exemption from Income Tax and Capital Gains Tax.  The current annual contribution limit for adult and junior ISA’s stand at £20,000 and £9,000 respectively, with any unused allowance unable to be rolled over to the next tax year. This limit applies to contributions to all types of ISA’s– cash or shares. Therefore, if you have not yet used your allowance this year, it will be lost if not used by 5 April.

Capital Gains Tax Allowance

Individuals who make gains on investments of up to £6,000 during 2023/24 pay no Capital Gains Tax (CGT) due to their CGT annual exemption. Any gains over this allowance are chargeable at 18% or 28% for residential property, and 10% or 20% for all other gains, depending on your levels of other income. Your annual exemption cannot be rolled over to a future tax year, so it will be lost if not used by 5 April 2024.

For the 2024/25 tax year, the individual annual CGT allowance will reduce to £3,000 so it could be worth crystallising any larger gains now in order to make use of the larger exemption.

IHT Annual Exemption

Gifts made to friends or family can usually be covered by your annual gift allowance of £3,000.  These gifts fall out of your estate for inheritance tax purposes immediately. Any unused allowance from the previous tax year can be carried forward for one tax year giving a potential maximum gift allowance of £6,000 in a tax year. Therefore, if you did not use your exemption for 2022/23, you could make gifts totalling £6,000 this tax year in order to utilise your full allowance.

Dividend Allowance

Each individual is entitled to a £1,000 dividend allowance to cover dividend income received each tax year. For the 2024/25 tax year, the individual dividend allowance will reduce to £500.

Any dividend income in excess of £1,000 is chargeable to 8.25%, 33.75% or 39.35%. If you are an owner-managed business with profits, and you have not yet utilised your £1,000 dividend allowance, we would strongly advise you to consider taking a dividend of £1,000 this year.

Overpayment Relief

Individuals can make a claim to HMRC if they believe they have paid too much tax in any of the previous four tax years. Therefore, if you believe you have overpaid income tax, capital gains tax or corporation tax in tax year 2019/20, you only have until 5 April 2024 to submit a claim for repayment.

Tax-Efficient Investments

Tax relief is given for certain qualifying investments in growing companies. Investments falling within the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and the Seed Enterprise Investment Scheme (SEIS) could be considered. The EIS and VCT schemes allow investors to receive 30% upfront income tax relief whereby SEIS investors receive 50% income tax relief on the amount which has been invested. Income tax reliefs are generous as these types of investments are generally considered high-risk.  Some of these investments also attract Capital Gains Deferral relief, and some can also be CGT free after a set period of time.

As always, our team are here to answer any questions you may have. Please do contact us if you have any questions or call us on 01276 61203

Jo Hardy – Personal Tax Director