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5 things to think about for tax year end planning

With the tax framework for the next few years now clear, your tax year end planning comes into even sharper focus

31/01/2023
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Jeremy Hunt's Autumn statement last November was more than just a reversal of the tax-cutting plans of his briefly empowered predecessor. In the view of two well-respected think tanks, it marked the country entering a 'new era of high taxation'. That viewpoint is hard to dispute, given the increases to dividend tax, capital gains tax and corporation tax alongside a multitude of tax allowances frozen until April 2028.

The grim contents of the Autumn Statement make tax year end planning especially important in 2023, with new deadlines having been created. Among the areas to condiser are:

  1. Capital gains tax - The current individual exempt amount of £12,300 of gains will drop to £6,000 on 6th April 2023 and the halve to £3,000 a year later. You should consider realising your investment gains up to the annual exempt amount before the axe falls. If you wish to retain the investment, then you may need to reinvest via an individual savings account (ISA) or a pension. Anti-avoidance rules make direct reinvestment within 30 days ineffective for tax purposes.
  2. ISAs - The main limit on ISA annual contributions has been frozen since April 2017 at £20,000. With tax allowances for capital gains and dividends being slashed over the next two tax years, your aim should be to maximise your ISA input. If you hold cash ISAs, review both the interest rate being paid (it probably has not kept pace with the base rate) and whether switching to a stocks and shares ISA would now provide greater overall tax benefits, if that suits your approach to risk.

  3. Pension contributions - Pension contributions should usually be made before the end of the tax year. This advice still stands if you want to carry forward up to £40,000 of unused annual allowance from 2019/20 as 5th April is the last day to do so. Otherwise, the reduction in the additional rate threshold in 2023/24 means you may receive more tax relief by delaying your contribution to the new tax year.

  4. Income timing - The higher rate tax threshold (£50,270 outside Scotland) remains frozen in 2023/24 and the additional rate threshold (outside Scotland) will be cut from £150,000 to £125,140. Accelerating receipt of income to the current tax year could save you tax, although it might also mean you pay (less) tax sooner. If you are a shareholding director, you may want to bring forward a dividend payment to before 6 April 2023. Similarly, you could hasten interest payments by closing a deposit account - but beware of any early closure penalties.

  5. Inheritance tax - The Autumn Statement froze the inheritance tax (IHT) nil rate band (NRB) and residence nil rate band for another two years, to April 2028. Had the NRB been inflation-proofed since it was fixed in April 2009, it would be over £140,000 higher next April. IHT year end planning takes advantage of the various annual exemptions which, with one limited exeption, cannot be carried forward. In 2022/23 lifetime gifts of existing investments are also worth considering, taking advantage of the current CGT annual exempt amount and lower market values.

As ever, the sooner you start talking to your adviser about your year end planning options, the better. This is especially the case if you wish to carry forward unused pension allowance, which may require slow-to-arrive third party information.

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Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

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The guidance and/or advice contained within this website are subject to the UK regulatory regime and are therefore targeted at consumers based in the UK.