With the 2023/24 tax year coming to an end on 5 April 2024 now is a good time to consider your personal tax planning opportunities if you haven’t already done so.
Once 5 April 2024 has passed some of your allowances could be lost – so it is important to act now.
Below are a number of possible tax planning opportunities for you to review to assist with this. However, everyone’s tax affairs are different, therefore, if you would like to discuss your affairs and any possible tax planning opportunities in more detail please do not hesitate to contact a member of the tax team.
Personal Allowance
Have you maximised the use of your personal allowance?
The maximum amount an individual can earn tax-free in 2023/24 is £12,570. If you are in a position where your income for the current tax year to date is below your personal allowance then you should consider whether there is an opportunity to bring any new income into the current tax year to fully utilise this tax-free allowance.
Director’s Remuneration Planning
Are you taking money in the most tax effective way?
If sufficient reserves are available, you may wish to consider taking more of your income from the company in the form of dividends before the end of the current tax year (subject to the child benefit changes outlined below). This could be to utilise the £1,000 tax-free dividend allowance if you have not yet taken dividends or to take advantage of the lower income tax rate that dividends are subject to. This dividend allowance reduces to £500 from 6 April 2024. If commercially viable, and subject to overall income levels, it may worth considering bringing forward a dividend payment to fall into the current tax year (so on or before 5 April 2024). If you would like a more detailed remuneration plan for future tax years to help optimise your income, please let us know and we will be happy to investigate for you.
Marriage Allowance
Are you eligible for marriage allowance?
If you are married or in a civil partnership and one of you earns £12,570 or less, then you might be eligible for the marriage allowance transfer. If applicable, you could save up to £252 a year in tax.
Income Levels
Can you do anything to mitigate higher rates of tax?
If your income is over £100,000, you will begin to be taxed at the highest possible rates. You could consider whether you can reallocate any income between spouses, introduce salary sacrifice arrangements, defer income, make pension or gift aid contributions or rearrange investments to help reduce your marginal tax rate.
The threshold for paying income tax at the higher rate (40%) will remain £50,270. The threshold for paying income tax at the additional rate (45%) will also remain at £125,140, remember that this threshold was reduced with effect from 6 April 2023.
As a simplification, self-employed individuals with profits above £12,570, will no longer be required to make Class 2 National Insurance Contributions, although they will still retain the state benefits associated with this type of contributions. Voluntary Class 2 contributions are still allowed for those with income below £6,725.
Pension Contributions
Do you make contributions into a private pension?
If you are a higher rate taxpayer you can claim additional tax relief for any personal pension contributions up to a maximum of £60,000 for any tax year, subject to your overall level of income and any tapering of that Annual Allowance. When considering additional contributions, you should check your Pension Input Periods, Net Relevant Earnings, and whether there are any unused allowances from previous years.
Capital Gains
Have you thought about your capital gains position this year?
Capital gains tax is payable on gains from the sale of property, land, shares, antiques and many other items. You are entitled to an annual exemption of £6,000 in 2023/24, which you can utilise against any gains during a tax year. This annual exemption reduces to £3,000 from 6 April 2024, which will bring future gains into charge which may have been covered by this exemption in the past.
Any losses made on the sale of assets can also be utilised, so please ensure that you inform us of these. Are you aware that in order to qualify for Business Asset Disposal Relief (formerly known as Entrepreneur’s Relief), your relevant assets must be held for at least 24 months prior to disposal?
Starting Rate for Savings
Are you making use of your starting rate for interest received?
You may be able to get up to £5,000 of interest tax-free if you have less than £17,570 of other income, excluding dividends. If you believe this could apply to you, please get in touch.
Every individual is also entitled to a tax-free savings allowance of up to £1,000 (£500 for higher rate tax payers).
ISAs
Thinking of putting more money into savings?
You can invest up to a total of £20,000 into an ISA where the income earned will not be taxable. Unused allowances will not roll forward. There are 4 types of ISA: cash, stocks and shares, innovative finance, and lifetime.
Inheritance Tax (IHT) Annual Exemptions
Thinking of making a gift?
The annual IHT gift exemption per individual is £3,000. If you did not use it, you are also able to bring forward your £3,000 exemption from the previous tax year. Other small gift exemptions are also available.
Child Benefit
Do you or your partner receive any child benefit?
You may be liable to the High Income Child Benefit charge if you or your partner, whether married or not, have an individual income of more than £50,000 and one of you receives Child Benefit. It may also apply if someone else receives Child Benefit for a child who lives with you.
The charge currently starts once that individual’s income reaches £50,000 and increases up to the threshold of £60,000, at which point the charge equals 100% of the child benefit received.
However, from April 2024 the threshold at which the charge applies increases to £60,000, with the upper threshold at which 100% of child benefit is repaid is being increased to £80,000.
Making pension contributions or gift aided donations may help to reduce this charge depending on your income level.
In practical terms, families that have previously opted out of Child Benefit because of the charge but will now be able to keep some of it, need to take action by 6 July 2024 to claim the full benefit, because it can only be backdated three months.
Did you know that even if the person claiming Child Benefit is not working, they will be eligible for National Insurance credits towards their State Pension provided the child is under 12?
Company Cars
Do you have or have you been offered a company car?
Are you aware that this may lead to a taxable benefit in kind which may need to be declared on your tax return? If your employer also pays for your fuel, then an additional benefit may arise.
The rules regarding the calculation of benefits on electric cars remain significantly enhanced to make the purchase and use of electric cars more attractive. For full battery electric vehicles (BEVs) the P11D rate for 2023/24 is 2% and this is frozen until 5 April 2025, after which it will rise by 1% each following year. These rates will also apply to cars with CO2 emissions under 50g/km provided they have an electric range of over 130 miles.
Furnished Holiday Lettings (FHL)
Do you own or are thinking of owning a Furnished Holiday Let?
A furnished holiday let must be commercially available for let for at least 210 days and actually let for at least 105 days per year in order to qualify as a FHL. Furnished holiday lets benefit from capital allowances, meaning a proportion of the cost of any furniture, equipment and fixtures can be offset against profits. For IHT purposes, a furnished holiday let does not qualify for Business Property Relief and therefore will become a chargeable part of your estate.
Due to the aftermath of coronavirus restrictions, a number of FHLs may not have been commercially available for let nor actually let for the required number of days. In order for these to continue to be considered as FHLs, a period of grace election will need to be claimed, however there may be additional tax consequences if you have used this election before.
Please be aware that from April 2025 the FHL regime is being abolished. The following article contains more information on this, however, we are still waiting for the draft legislation to be published before we can provide any further detail: https://www.randall-payne.co.uk/budget/spring-budget-2024-property-taxes/
Investment Property
Do you own, or are thinking of buying, an investment property?
If you own, or are thinking of buying, another property as an investment it may be worth thinking about the implications to both your Income Tax and Capital Gains Tax positions. Are you claiming all the expenses you are entitled to? Are you keeping a record of all capital improvements? Are you aware of the restriction to finance costs on residential property?
Gift Aid
Do you make, or are you looking to make, donations to charity?
If you are a higher rate taxpayer, making gift aid donations to charity during the tax year can reduce your tax burden.
Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts
Do you have spare cash to invest?
Investments made into these schemes attract Income Tax and Capital Gains Tax advantages. Eligible subscriptions into these schemes may result in Income Tax savings and Capital Gains Tax deferral or exemption provided certain conditions are met upon ultimate disposal.
Stamp Duty Land Tax
Multiple Dwellings Relief for SDLT is being abolished with effect from 1 June 2024. This relief was introduced in 2011 and applies where a buyer purchases 2 or more dwellings in a single transaction and allows them to calculate the duty based on the average value of the dwellings.
The objective of the relief was originally to reduce a potential barrier to investment in residential property and to promote private rented sector housing supply. However, a government review found that the relief was having a minimal impact on housing supply, and it is therefore being abolished due to not meeting its original policy aims.
Any purchases which complete (or substantially perform) before 1 June 2024 will still qualify for relief. Any purchases which exchanged contracts on or before Budget Day (6 March 2024) will still qualify no matter when they complete.
Future Planning
Inheritance Tax (IHT) Position
Could you benefit from an IHT review?
With each passing year comes a good opportunity to review your estate and wishes, and assess whether you need to consider an IHT plan. IHT at 40% can represent a significant reduction in the value of your estate, which could otherwise be passed on to your loved ones. Questions you should be asking yourself are: Have I written a will? Is the value of my estate worth more than £325,000? Do I want to provide for my family now or make any lifetime gifts?
Could Family Investment Companies be an option?
Instead of transferring assets into a trust as part of Inheritance Tax planning, some people may choose to use Family Investment Companies (FICs) as a vehicle to accumulate and pass wealth on to future generations. As the management of a company’s assets remains with the directors, the gift of shares in a FIC may be preferable to older generations rather than the gift of assets directly. Allocating different share classes within a FIC will also enable control over the voting rights and rights to dividends, too.
Capital Gains Tax (CGT)
Looking ahead, planning may be required now in respect of recent and forthcoming changes:
- For disposals of residential property, you will be required to report the disposal and pay any CGT due within 60 days of completion.
- The annual exemption of £6,000 will be reduced to £3,000 from 6 April 2024. Accordingly, you may have the ability to plan future disposals in order to utilise these amounts for a number of years and limit the amount of CGT you may be liable for. For example, shares in an investment portfolio, sharing assets with a spouse to make use of their exemption if relevant.
If you would like to further discuss any of the above, please do not hesitate to contact us.
N.B the above points are based on UK taxpayers and may not be fully applicable if you are a Scottish taxpayer.
If you have any questions for our Tax experts, please contact us on 01242 776000 or tax@randall-payne.co.uk.
