As the current tax year draws to a close on the 5 April 2023, the team at Sanctoras have been putting measures in place to support clients with their year-end tax-planning strategies. This is particularly important given the changes coming in as of 6 April.

Allowances and reliefs as an individual

The end of the tax year is an important opportunity to maximise your tax allowances and reliefs.

It is beneficial to check whether you have utilised your £20,000 ISA allowance, as well as to bear in mind time limits and record keeping. With regards to time limits, as an example, you can only claim losses or repayments back over 4 tax years. This means that 2018/19 tax year losses/repayments must be claimed back by 5 April 2023.

Below are some key considerations:

Tax bands

‍The UK government plans to freeze most tax bands until April 2028; making minimal changes to allowances and reliefs for the upcoming tax year.  However, Scottish tax rates are due to change from 6 April 2023.

In 2022/23 individuals with a total income in excess of £150,000 will pay the additional rate of income tax, currently 45% on most income, (46% in Scotland). Although certain individuals with income between £100,000 and £125,140 are subject to an effective 60% tax rate (61.5% in Scotland) owing to the tapered removal of the personal allowance (£12,570 for 2022/23). 

From 2023/24, the additional rate of income tax will apply to incomes in excess of £125,140. 

CGT

‍Although CGT rates are to remain the same, a drastic change will be made to the tax-free allowance, with this reducing from £12,300 to £6,000 from 6 April 2023. The allowance will be halved to £3,000 from 6 April 2024.

Dividend bands

‍Whilst these bands will remain the same, the dividend allowance will be halved from £2,000 to £1,000 as of 6 April 2023. It will then be halved again to £500 from 6 April 2024.

Corporate investments

‍It is also necessary to consider investments held within a corporate structure,  because the main rate for corporation tax is due to increase from 19% to 25% as of 1 April 2023. Rates of less than 25% can apply where profits are less than £250,000, unless the company is a 'close investment holding company'. This will apply to Family Investment Companies.

Transferring assets to spouse of civil partner

Consideration should be given to gifting income and capital-producing assets to spouses or civil partners if they do not already use their personal allowance, basic and higher rate bands.

Please be aware that calculating the effects of a transfer of assets can be complex, and a transfer is likely to have wider implications than tax. We recommend that you discuss any potential transfer with us in advance.

Maximising your personal allowance

For those receiving an income above £100,000, the tapering or removal of your personal allowance is a key consideration.

This will mean that for each £2 of your income above £100,000, your personal allowance will be tapered by £1. The result will be that those earning above £125,140 will not receive a personal allowance at all.

Reducing taxable income below £100,000 before the taper kicks in is a consideration for many individuals. This can be achieved in a number of ways, such as increasing pension and charitable contributions, as well as paying a part dividend and part salary (to make use of any available unused dividend allowance). Please discuss any intended action with us in advance.

Charitable donations

You may be able to make cash charitable donations to reduce your taxable income and preserve your personal allowance.

For example, an individual paying tax at the additional (45%) rate who makes a qualifying donation to a Gift Aid registered charity of £10,000, can obtain tax relief of £3,125 through their tax return. The Charity can also reclaim £2,500 from HM Revenue & Customs . This means that the charity receives a £12,500 donation at a net cost to the donor of £6,875.

Tax relief may be available for certain charitable donations not made in cash form, but you should review this with us to ensure that any tax relief is claimed.

Retirement and succession planning

Retirement and succession planning is often overlooked, despite being a guaranteed consideration for all. Although there has been minimal impact to succession planning from the UK government's fiscal changes over the last tumultuous 6 months or so, it is an area to keep in mind.

‍Pension contributions

Maximising pension payments can be a useful way to reduce your taxable income and preserve your personal allowance. Pensions can be quite a complex area, and often involve wider financial and investment considerations as well as tax.

In summary, the amount of tax-deductible pension savings that can be made for each individual is limited to the 'annual allowance'. Since 6 April 2014 the standard allowance has been £40,000.

Where taxable income exceeds £240,000, this will be reduced by £1 for every £2 between £240,000 to £312,000. This will give a minimum annual allowance of £4,000. There is also a 'lifetime allowance' which currently sits at £1,073,100 (the total savings that can be accumulated in registered pensions without incurring a tax charge), which is set to remain until 5 April 2026. Where this amount is exceeded, charges apply.

We recommend talking to us if you have any questions relating to your pension contributions.

Other considerations

Succession planning, and inheritance tax planning should be reviewed regularly. We recommend you start this long before you think it is necessary; both are areas very specific to each client’s needs. If you have any questions, one of the team at Sanctoras will be more than happy to advise.

Non-UK domiciled individuals

At Sanctoras we work with many individuals who are non-UK domiciled. It is of the utmost importance that these individuals have a plan in place to ensure they are being taxed appropriately.

If you are a client and have queries about anything mentioned in this article, please feel free to talk to your usual contact at Sanctoras. If are not a current client, but would like to speak to us, any member of our team will be happy to talk over your individual circumstances.