Date
15 Dec 2022Category
Wealth Management & Financial PlanningWith 2021/2022 tax year end returns needing submitted ahead of 31 January, individuals and businesses should now be looking at final planning for tax year end on 5 April 2023. A crucial part of this is to consider the allowances and whether there is also any scope to maximise tax breaks.
Deborah Trelease FPFS, and Chartered Financial Planner, talks through some considerations for both individuals and businesses before the tax year end.
It is recommended looking into ISA cash allowances or Stocks & Shares ISAs, as they allow the option to save £20,000 per tax year. If the allowance isn’t used, it is lost. There’s also the option of Junior ISAs too, which can help any children in the future if they decide to go to university or buy a house – these are now £9,000 each tax year so have increased significantly over recent years. There’s the less publicised Lifetime ISA too that can help with house purchase or retirement – this uses part of the ISA allowance.
Individuals can gift up to £3,000 each year of capital without attracting Inheritance Tax (IHT) – this can be increased to include last year’s too, if not used. There are also other amounts that can be given away each year that don’t count towards this ‘gift allowance’, including wedding gifts and smaller sums. Any excess income can be gifted to help with IHT planning, and this can be invested for the person receiving the gift. It’s important to note that gifts to charity help with tax planning as well, as Gift Aid is tax efficient.
Using pension payments can help reduce tax bills for higher rate taxpayers. There’s an annual allowance up to £40,000, depending on circumstances. A Financial Planner can help people work out their optimum contributions and if they do have a full annual allowance. Even NHS and defined benefit pensions need to be considered here. Any unused allowances from the previous three years can be carried forward, so if all allowances for the 2019/20 tax year haven’t been used, they’ll be lost on 5 April 2023. As noted, a specialist Financial Planner is able to work out what allowances people have left.
There are pensions for children too, with it possible to gift £3,600 gross per year (£2,880 after tax relief from income or capital,) to a pension. It’s worth thinking about if personal allowances are used to draw pensions, in order to save tax in the future.
If the employer allows salary sacrifice, there are national insurance savings to gain too. Some schemes allow people to change once a year, maybe in the new tax year. Salary sacrifice is explored in more detail here.
Some individuals are classed as high earners and may not be able to put their full £40,000 into a pension. Again, it’s important to check this. Higher earners may also want to think about tax efficient investments like the Enterprise Investment Schemes or Venture Capital Trusts, but these are fairly specialist and not for everyone.
If an individual has shares or is looking to sell, then straddling the tax over two years gives double the capital gains allowances – £12,300. As an alternative, it may also be beneficial to transfer some to their spouse to double up.
For those who are married and a spouse doesn’t use all of their personal allowance, it may be possible for basic rate taxpayers to claim some of this.
The dividend allowance is £2,000, which means that people can receive this amount of dividends tax free. Any bonus payments could be taxed differently depending on the rates in the year. A business owner could pay before the tax year end – it doesn’t matter when the company year-end is, personal income is tax year to tax year.
This is only a summary of some topics to think about. There are so many considerations around this complex area and it is always recommended that people speak to a specialist Financial Planner.
To talk through any of these topics in more detail, or any other tax year end considerations, please get in touch with your usual Azets advisor or a member of our Wealth Management team.
The purpose of this blog is to provide technical and generic information and should not be interpreted as a personal recommendation or advice. Tax Planning and Estate Planning are not regulated by the Financial Conduct Authority.
Azets Wealth Management is a trading name of Azets Wealth Management Limited, which is authorised and regulated by the Financial Conduct Authority. Registered Office: Bulman House, Regent Centre, Gosforth, Newcastle upon Tyne, NE3 3LS. Company Number 05674020. Incorporated in England. Azets Wealth Management Limited is a subsidiary of Azets Holdings Limited.
