With the TYE fast approaching, it’s time to get your financial ducks in a row.  With inflation slicing into spending power no one wants to pay more tax than they need to.

Below are 6 important areas to consider when planning for the Tax Year End on 5 April: 

1. Maximise your ISA allowance

ISAs provide a tax efficient environment for your savings as they remain free from UK income tax and CGT. If you’re over 18 the maximum investment that may be made during the 2023/24 tax year is £20,000.

However, don’t forget about the Junior ISA allowance for under 18’s. The maximum allowance for this year’s contributions is £9,000.

In addition, 16 and 17 year old’s are currently able to invest up to £20,000 in an adult Cash ISA on top of the £9,000 Junior ISA allowance, this ISA “loophole” is due to close in the new tax year.

Be aware that any unused ISA allowance cannot be rolled forward into the next tax year – so use it or lose it!

2. Manage your investments

Investing in qualifying Venture Capital Trusts (VCT) will attract 30% income tax relief (maximum investment of £200,000) providing the investment is held for five years. Dividends are tax free and no Capital Gains Tax is paid on disposal. Whilst such investment may reduce your income tax liability, they are only suitable for those with a high tolerance to risk who can afford to bear loss of capital, always seek appropriate professional advice before making an investment.

3. Maximise your pension contributions

Contributions to your personal pension plan attract income tax relief. The maximum contribution that may be made for 2023/2024 without incurring an income tax charge increased to £60,000. You may be able to make additional contributions if you have not used your allowances for the previous three tax years. Contributions must be made before 5 April 2024 if tax relief is to be claimed in 2023/2024.

High earners continue to be impacted by the reduced annual allowance for those earning over £260,000. With the minimum pension amount for those high earners being reduced to £10,000 dependent on your earnings, so seek professional advice to determine if you are affected by the taper.

Use your pension contribution wisely, if you earn over £100,000 your personal allowance will start to reduce. For every £2 you earn over £100,000, your allowance of £12,750 is cut by £1. Therefore, a salary of £125,140 per year will mean you pay Income tax on all of your income. If you contribute to your pension, you can reduce your income on paper, helping you retain your personal allowance.

Similarly, anyone earning over £50,000 and in receipt of child benefit will start to see this benefit reduced, hit £60,000 per annum and you will lose your child benefit completely. Again, a well planned pension contribution can help counter this.

Lastly, don’t forget about a pension for non-earning spouses, partner or child. In the 2023/24 tax year you can contribute £2,880 net into a pension attracting tax relief, meaning your £2,880 will be topped up to £3,600 by the government.

It is worth noting, with the abolition of the Lifetime Allowance fast approaching, many additional factors now need to be considered in relation to pension planning. This is a specialised area and advice would need to be obtained specific to individual circumstances.

4. Capital Gains Tax

For 2023/24, capital gains of up to £6,000 per person will not give rise to a capital gains tax liability. So, make sure you use your annual capital gain tax exemption before 5 April 2024, if appropriate, as any unused balance cannot be carried forward.

This point is particularly important this year as from 6th April 2024 we will see the Capital Gains Allowance reduce from £6,000 to £3,000 per annum.

5. Dividend allowance

In addition to CGT allowances, those with invested assets could also benefit from their dividend allowance. This is currently £1,000 per year and can be paid tax-free. Anything above this is taxable at dividend rates.

From the 6th of April 2024 this allowance will also be reducing to £500 per annum.

6. Inheritance Tax

If you are considering making gifts to family and friends in the near future, ensure that you have maximised your annual inheritance tax gift exemptions for this tax year. You may also utilise any unused part of the previous tax years exemption, but this will be lost if not used by 5 April 2024.  The annual gift exemption is £3,000 and small gifts exemption is £250.

The Spring Budget is due on the 6th of March and we will be keeping a close eye on any changes announced.

Talk to your adviser

The above is a brief overview of some of the actions that you can take to reduce your tax liability, however there are other options available that you may want to consider for your own personal situation. As always, we recommend that professional advice is sought with your financial planner before taking action. Get in touch with the Johnston Carmichael Wealth team. 

Disclaimer:  Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate tax and estate planning

This communication should not be read or considered as financial advice. While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm.