Private Client Newsletter

Reducing Your Tax Liability – the key is to think ahead

Ordinarily a large amount of tax planning is left towards the end of the tax year, but it is worth considering your position and taking steps now to get your finances in check. The last year has certainly provided plenty of challenges, which look to continue, with high inflation and interest rates it is worth taking some time to consider the tax planning opportunities that are available.

With that in mind, this checklist from Sam Mudd, Senior Tax Adviser, covers everything you need to consider before 6 April 2024 to put you and your family in the best possible position.

Key tax planning areas to consider As well as optimising your tax planning for the current year (2023/24). Tax planning strategies are usually most effective when implemented before the tax year begins. The following are the key areas to consider. Income tax Personal income of between £100,001 and £125,140 is taxed at an effective rate of 60% due to the loss of the personal allowance, while income over £150,000 is taxed at 45%. Child Benefit is tapered for incomes between £50,000-60,000 so for a taxpayer with two children who receives Child Benefit of £2,074.80 per year (2023/24 rates), the effective rate of tax is 60.75% in this income bracket, while for those with three children who receive Child Benefit of £2,901.60, the effective rate of tax is a whopping 69% for income between £50,000-60,000. Tax planning can be particularly effective for taxpayers who find themselves in the punishing income bands set out above.

Capital Gains Tax Most individuals have a Capital Gains Tax allowance of £6,000 for the 2023/24 tax year. Any assets that are sold at a loss can reduce gains for the year or be carried forward and set against future capital gains. Importantly, any of the annual exemption not used cannot be carried forward and will be lost. Assets can be transferred between spouses and civil partners tax efficiently to ensure both exemptions are used fully. From April 2024 the Capital Gains Tax allowance will be reduced further from £6,000 and to £3,000 making it even more important to utilise the higher annual exemption whilst it is available.

If you wish to avoid the higher rate of tax, you should consider steps to reduce your taxable income to below these levels if you can. Increasing your pension contributions might be an effective way to do that. Alternatively, you could consider:

Transferring an income-generating asset to a spouse with lower income

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Pension contributions

Deferring income to a later tax year, if your income is going to be lower

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Making Gift Aid payments

Tax efficient investments such as Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS) and Venture Capital Trusts (VCT)

Annual allowance for pension contributions

Other steps you can take to reduce your income tax liability include:

Investments in your pension are free from Income Tax and Capital Gains Tax, but there is a limit to the amount you can pay in. The current standard tax-free pension allowance has increased from 6 April 2023 to £60,000 or 100% of earned income, whichever is higher. The carryforward rules allow you to make use of any annual allowances that were not used during the last three years. That makes 5 April 2024 the last opportunity to use unused allowances from 2019/20.

Ensuring married couples / civil partners both have sufficient income to use their full personal allowance: £12,570 in 2023/24 or claim the Marriage Allowance where it is not possible to redistribute income. The Marriage Allowance could give a tax saving of up to £252 for the current year. Redistribute investment capital between spouses / civil partners to reduce the tax incurred on income and capital gains. No tax is payable on transfers between married couples and civil partners.


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