Planning for the UK tax year end

The UK tax year ends on 5 April. The best tax planning is often the simplest, so taking a few straightforward steps before then can ease your tax bill and boost your bank balance. Here are five considerations to help you minimise your liabilities.

1.???? Beware the ￡100,000 trap

If your taxable income exceeds ￡100,000 a year, you start to lose your tax-free personal allowance. This means that between ￡100,000 and ￡125,140, you face marginal tax rates of up to 60%.

The situation may be even worse if you are a parent, as you will also lose access to tax-free childcare if one or both parents have taxable income above ￡100,000.

The good news is that you can deduct your personal pension contributions and charitable donations on which you have claimed Gift Aid from your taxable income. This gives particularly advantageous tax savings.

·?????? Pension contributions must be made by 5th April, but charitable donations can be made up to the point at which you file your tax return and carried back into that tax year.

·?????? The annual allowance for pension contributions increased from ￡40,000 per year to ￡60,000 for 2023/24. You can also utilise any unused pension contributions from the previous 3 years, up to your allowance in those years.

·?????? Those with income above ￡260,000 (previously ￡240,000) will see their annual pension allowance taper down to as low as ￡10,000 (this has previously been as low as ￡4,000).

The lifetime allowance is being abolished from 6 April 2024, but if your pension pot has already exceeded this amount and/or you have fixed or enhanced protection, you should be able to recommence pension contributions from 6 April 2023. This, however, is a complex area and professional advice should be sought.

Looking ahead, couples may wish to shift income-producing assets between them if one pays tax at a lower rate than the other. Be aware that capital gains tax (CGT) may be payable if you are not married and there are various circumstances where a gift will give rise to a taxable event.

2.???? ISAs and JISAs

Both pensions and ISAs provide a tax-free wrapper for investments. Pensions provide upfront tax relief with subsequent withdrawals charged to tax whereas ISAs provide no upfront tax relief but have no tax on withdrawals.

ISAs have become more flexible in recent years, giving you greater choice in what you can invest within an ISA wrapper. If you can take advantage of your ￡20,000 ISA allowance by 5th April, then the income and growth in value will be tax free for so long as the funds are held within the ISA.

However, if you are only holding cash then it is worthwhile checking what interest rates you will receive as these can be lower for ISAs than general savings accounts. If you are a basic rate taxpayer then the first ￡1,000 of non-ISA interest you receive is tax free, which drops to ￡500 for higher rate and nothing for additional rate taxpayers.

Junior ISAs are available for children, with an annual allowance of ￡9,000 per child.

If you have withdrawn money from an ISA during the tax year, try to repay this by 5 April to maintain your allowances.

3.???? Make use of inheritance tax (IHT) allowances

It is widely known that if you gift money or assets then you need to survive 7 years for it to be free of inheritance tax. However, there are allowances which can be gifted which are immediately free of inheritance tax:

·?????? Up to ￡3,000 can be given away each year. If you do not use the allowance in one tax year, it can be rolled forward to the next, but if you haven’t used your allowances for both 2022/23 and 2023/24 then you will lose the former after 5 April 2024.

·?????? There are additional allowances for wedding gifts (￡5,000 for children, ￡2,500 for grandchildren and ￡1,000 for anyone else) and gifts of up to ￡250 per person for an unlimited number of people.

If you wish to gift more, and you have surplus income, then regular gifts out of income can also be free of IHT.

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4.???? Capital gains tax (CGT) planning

Each year you have an amount of capital gains which you can make without paying CGT, although this has more than halved to ￡6,000 in 2023/24 and will halve again to ￡3,000 in 2024/25. There are separate rates applicable for trustees.

Those with investments should utilise this exempt amount each year. You cannot sell shares to crystallise a gain and then buy the shares back within 30 days, as this will be treated as a sale of these repurchased shares. Consider instead buying a similar stock, or even the same stock, but within an ISA.

5.???? Tax advantaged investments

Shares which qualify for enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) and venture capital trust (VCT) give great tax advantages, as the Government seeks to incentivise investment in riskier start-up and small companies. Income tax relief is a flat 30% (EIS and VCT) or 50% (SEIS) of the amount of the investment made, assuming that you have a sufficient tax liability to offset this.

However, the tax reliefs extend beyond this. Subject to certain conditions, sale of the shares at a profit is exempt from CGT but losses made can be set off against your taxable income.

Additionally, SEIS shares can be used to exempt other gains which you may have made, up to 50% of the amount invested in SEIS shares.

EIS shares have a similar but less generous relief: other gains are frozen, to be crystallised when the EIS shares are sold or otherwise become ineligible. This comes with a warning, though: the crystallised gain will be chargeable at the tax rates at that time, so if CGT rates increase then you may end up paying more tax.

These are risky investments and you should take financial advice. The good news is that the income tax relief can be carried back one tax year; you have time to choose your investments wisely.

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The information contained in this article is general guidance only. The application and impact of laws can vary widely depending ?on the specific facts involved. The information in this article is provided with the understanding that the authors and presenters are not giving legal, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional legal, tax or other competent advisers. Before making any decision or taking any action, you should consult a Child & Child professional.