Tax Year-End Planning

Tax year-end is fast approaching, and there are several areas in which pre tax year-end planning may be of benefit prior to the 5th April 2023. Some advance planning can ensure that you do not pay more tax than you need to, and you can retain more of your wealth to benefit yourself and those closest to you. Having your finances set up in a tax-efficient manner mean that you are in a much stronger position to achieve your goals e.g., becoming financially independent, retiring early, or minimising inheritance tax (IHT).

We work closely with our clients throughout the year and have regular reviews, which makes year-end tax planning more straightforward, as we are up-do-date with any changes in your circumstances. This means we can consider all methods of reducing tax liabilities as they arise. However, prior to tax year-end, we carry out an additional targeted review on all our client's portfolios to ensure that they are structured to take advantage of the available tax allowances. You may have already received a communication from your adviser as this process has already started.

• Things to be considered at tax year-end include:

• Using your tax-free Individual Savings Account (ISA) allowances

• Maximising your pension contributions and the associated reliefs

• Utilising any Capital Gains Tax exemption

• Gifting some of your wealth to reduce tax

• Utilising other allowances available on dividends, properties, etc.

The reliefs for 2023/24 are shown below:

Personal Allowance: £12,570
You only pay income tax on any earnings which are above the £12,570 threshold. So, if you earn £18,000 in a tax year, the taxable element of your income is £5,430. It is worth noting that the tax-free Personal Allowance starts to reduce if you earn a higher level of income. For every £2 that you earn above £100,000, the Personal Allowance reduces by £1. This means that if you earn £125,140 or more, your personal tax allowance is zero.

ISA Allowance: £20,000 (Adult) £9,000 (Junior) £4,000 (Lifetime)
You are free to split your Individual Savings Account (ISA) allowance any way you like across a Stocks and Shares ISA, Cash ISA, Lifetime ISA and an Innovative Finance ISA, as long as you stay within the overall limit. For example, you could put £5,000 in a Cash ISA, £4,000 in a Lifetime ISA and the remaining £11,000 in a Stocks and Shares ISA.

Pension Annual Allowance: £40,000
Although the allowance is £40,000 you can only receive tax relief up to 100% of your earnings. So, if your earnings are lower than £40,000 you will be entitled to tax relief only up to the amount you earn. If you earn less than £3,600, you can pay in up to £2,880 and still get tax relief.

Dividend Allowance: £2,000 (reducing to £1,500 in April 2023)
The dividend allowance is changing, with the current £2,000 threshold reducing in April 2023 (£1,500), and then again in April 2024 (£500). This means that you’ll pay tax on more of your dividend income.

Capital Gains Tax annual exempt amount: £12,300 (individuals)
The annual exempt amount (also known as the AEA) is the amount of gain you can make in a year before starting to pay tax on it. You’ll pay Capital Gains Tax (CGT) on the total gains you make in a year above the annual exemption threshold (and you can still use the personal tax allowance too). The AEA will be reducing to £6,000 in April 2023, then £3,000 in April 2024.

We hope that this has been useful. If you have any questions or would like to speak to an adviser, please contact our team at anytime.