End Of Year Tax Planning: Pre 5 April

Have you thought about your end of year tax planning?

As another tax year end comes around we turn our thoughts to any tax planning that can be undertaken before the 5 April.

You can find a link to our general tax planning guide here Tax Year End Planning Feb 2024, as a reminder of the basic planning opportunities to be considered annually. The UK has a Spring Budget on 6 March 2024, it would be prudent to consider the following planning in particular:

Pension contributions

Tax relief on pension contributions is very costly to the Exchequer but is a very valuable to the pension saver with relief available at the top rates of tax. There remains the risk that the Chancellor might curtail this relief, although this risk has subsided with an election on the horizon. However a change of government could provoke changes. Higher rate and additional rate tax can be saved on pension contributions but be wary of the limits on the tax relief available to avoid a charge.

Where applicable and practical to do so, look to utilise unused annual pension contribution allowances from the 2020/21 tax year before they are lost after 5 April 2024.

Managing income levels tax-efficiently (2023/24)

Pension savings and gift aid donations can produce particularly significant tax savings for those:

• With income over £50k, to avoid the high income child benefit clawback charge and avoid the higher income tax rate.
• With income over £100k, to preserve the income tax-free personal allowance in full and
• With income over £125,140, to avoid the additional income tax rate.

The budget may provide some welcome increases in these limits, which have been frozen for a number of years now, or in the case of the additional rate of tax reduced. Tax planning for pensions and charitable donations may provide more relief in 2023/24 than 2024/25.

Capital Gains Tax (CGT)

CGT rates continue at an all-time low. However the Chancellor reduced the tax free limit on taxable gains to £6,000 from April 2023 and this reduces again to £3,000 from 6 April 2024. With these changes it is unlikely that the Chancellor would consider any further changes to the CGT rates and limits. A change of government may be on the cards, could the incoming government align CGT rates with income tax rates? With the reducing tax-free limits, and the risk of rates increasing, it could be an optimum time to crystalize any gains and utilise available current year and previous year capital losses, where applicable.

Inheritance Tax (IHT)

It was reported before the last budget that IHT may be scrapped, or limits changed, and yet no announcement was made. Rumours abound again that IHT could be looked at in the Spring Budget with a potential reduction in the 40% rate, or increases in the nil rate band. It is difficult to predict what will happen. In any case I recommend you make use of your £3,000 annual gift allowance, or £6,000 if you have not used the prior years gift allowance. At least if nothing changes you are making the most of your allowances each tax year.

Tax efficient end of tax year remuneration planning

Ensuring the extraction of monies/profits from a personal limited company is taken as tax efficiently as possible, by way of salary, dividends, interest and/or pension contributions, utilising available annual allowances, reliefs and lower tax rates, where applicable.

Known tax hikes

From 6 April 2024 the dividend allowance will reduce from the current £1,000 to £500, and, as above, the CGT exemption is reducing.

ISAs shelter shares from both Income Tax and CGT. You may want to consider moving shares into ISAs within your £20k ISA subscription limit and utilising your £6,000 CGT exemption before 5 April 2024. With investment income on the rise, and banks actually paying interest on savings, utilising your annual ISA subscription becomes increasingly valuable.

Get In Touch

To discuss any tax planning before the budget, or 5 April, please contact your local Whitings LLP office.

Disclaimer - All information in this post was correct at time of writing.