Tax Planning for Individuals 2023-24
Posted on 16th May 2023 at 12:37
The Chancellor’s Autumn Statement 2022 froze personal tax and NIC rates and allowances at the current rate until April 2028. As a result, most pay increases will be taxable and if the pay is less than inflation, then take-home pay will suffer on two accounts. Any pay rise at less than the rate of inflation will result in less household spending power, as will the impact of any extra tax paid on the pay increase received.
One way of tackling this, if you can afford to, is to direct any pay increases into additional pension contributions, which would be tax-free if kept within the increased annual allowance of £60,000 (previously £40,000).
There are some other opportunities to reduce your tax implications if you plan ahead. This includes income tax, Capital Gains Tax and Inheritance Tax.
Understanding your income, the tax charges and any benefits and allowances you are eligible for (such as working tax credits, child tax credits and pension relief) are essentially in ensuring that you are managing your income in the most tax-efficient way.
You could consider the following options to improve your tax efficiency, although you should get individual advice before taking action as each person’s circumstances and their implications vary.
Share ownership of income producing assets with a spouse or adult child
Pay more into your pension depending on your annual allowance (seek advice from your pension advisor)
Gift aid donations extend your basic rate tax band and there is no limit on the amount you can donate
Spouses can transfer up to £1,260 of their personal allowance to their spouse
Company vehicles – discuss changing to a lower emission vehicle to reduce charges and consider repaying any private fuel if your employer pays for it to reduce car fuel benefit charge
Utilise your £20,000 annual ISA allowance for tax-free savings and look at other specialist investments that qualify for deductions
If you are in receipt of a State Pension this is also part of your taxable income
This is explored in more detail in the attached Tax Planning for Individuals 2023-24 document.
Capital Gains Tax
Capital Gains Tax (CGT) was one of the areas targeted by the Chancellor in the Autumn Statement 2022 where allowances will be significantly dropping. The allowance for 2023-24 is £6,000 when it was previously £12,300 in 2022-23, and it will drop again to £3,000 on 6 April 2024.
This reduction in CGT allowance means that you should carefully consider disposals and their timing before 6 April 2024 when the allowance drops again. This includes:
Ensure you utilise your tax-free allowance each year by selling assets or shares
You can counteract gains on one asset by selling another one at a loss to reduce your overall gain within the year
Be aware of Business Asset Disposal Relief if your assets belong to your business as the rates can be lower if eligible
Your income impacts the rate of CGT you pay
Gifts to a spouse are exempt from CGT
Your spouse and children have their own tax-free allowance so transferring assets can reduce CGT liabilities if done before a sale
Other reliefs can be available depending on your individual circumstances so you should seek advice
If you are selling a residential property that has been personally owned and let out, you need to file it with HMRC within 60 days of the property disposal and pay the CGT due
There are more details about exemptions, rates and actions you can take on the attached Tax Planning for Individuals 2023-24 document.
Another area to consider for yourself and your family members is Inheritance Tax (IHT) which can also include gifts made by an individual during their lifetime.
There are many factors to take into consideration and it is worth seeking advice if you think any of this might affect you so that you can take the most appropriate actions for you and your family. Things to consider:
Gifts classed as lifetime gifts can be subject to IHT as part of the giftee’s estate for up to seven years. For the first three years, IHT is payable at 40%, then it tapers down between three and seven years from 40% to 0%.
Assets left to a spouse are free of IHT
IHT applies on estates over £325,000
You can use the deceased spouse’s IHT allowance if they didn’t use it
Revalue your estate each year and take steps to minimise any future IHT liabilities if your estate valuation has increased
Make sure you have an up-to-date Will and change it if your circumstances alter
Consider transferring assets into trusts or making lifetime gifts to reduce exposure to IHT if your assets exceed the threshold
If you make regular gifts in excess of the £3,000 gift allowance, you should keep accurate records of the gifts and your disposable income as relief may be available
If you own a business, you should plan what you want to do with your shares and whether you should transfer ownership without losing control. You can also read our blog on Business Property Relief.
There are more details about gifts, exemptions and actions you can take on the attached Tax Planning for Individuals 2023-24 document.
Tagged as: Capital Gains Tax, financial planning, income tax, inheritance tax, self employed, tax planning, tax return
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