Talking tax isn’t always popular. But with 5 April looming we thought we’d share our top tips for tapping into all of the tax planning opportunities open to you.
Have a read through and if you have any questions don’t hesitate to get in touch.
INCOME TAX
Income between £12,571 and £50,270? You’ll be taxed at the basic rate of 20% (dividends 8.75%).
Income between £50,271 and £150,000? You’re in the higher tax band which means you’ll pay 40% tax (dividends 33.75%).
Your personal allowance is reduced by £1 for every £2 of income above £100,000. This means there’s no personal allowance when income exceeds £125,140. But you might be able to get it back by using our top tips below.
Income over £150,000? You’ll be taxed at the additional rate of 45% (dividends 39.35%). From 6 April 2023, the additional rate threshold will reduce to £125,140. This means that you will be taxed at 45% (or 39.35% on dividends) when you earn over £125,140.
| Income tax band | Income tax rate 2022/23 | Income tax rate 2023/24 |
| Basic – 20% (dividends 8.75%) | £12,571 – £50,270 | £12,571 – £50,270 |
| Higher rate – 40% (dividends 33.75%) | £50,271 – 150,000 | £50,271 – 125,140 |
| Additional rate – 45% (dividends 39.35%) | £150,001 and over | £125,141 and over |
OUR TOP TIPS:
– The personal savings allowance grants £1,000 of tax-free savings income to basic rate taxpayers. For higher rate taxpayers this figure is £500. Additional rate taxpayers don’t receive this allowance, so if you can, make sure you use it.
– For 2022/23, the £2,000 dividend tax allowance is available for all taxpayers. Dividends falling within this allowance are taxed at 0%. Make the most of it as from 6 April 2023, this is reducing to £1,000.
– You can transfer income-producing assets to a spouse or civil partner to make sure you’re both using all the available allowances. This is also useful if they’re taxed at a lower rate.
– Reduce your higher tax rate liability by reducing your taxable income. This can be done by making payments to a pension plan, making donations to charities under ‘Gift Aid’ or converting income into non-taxable forms. This may be attractive if you’re: A) earning between £50,000 and £60,000 and you get child benefit (as this benefit is reduced when your earnings exceed £50,000); or B) earning above £100,000 such that you are losing your personal allowance.
CAPITAL GAINS TAX
Capital Gains Tax (CGT) is a tax on any profit you make when you sell an asset that has increased in value.
For 2022/23 you can make gains of £12,300 tax-free. This exemption cannot be carried forward into the next financial year. From 6 April 2023, this tax-free allowance reduces to £6,000.
OUR TOP TIPS:
– Have you used your annual exemption? If not, think about selling assets before 5 April.
– Make sure you’re utilising your spouse or civil partners’ annual exemption by transferring assets to them before selling them.
– Business Asset Disposal Relief (previously Entrepreneurs’ relief) is available on the first £1,000,000 of an individual’s lifetime qualifying gains. This can mean that CGT is due at 10% rather than 20% but you need to check that this is the case.
– If you own a second home, or a holiday home, you can decide which property is treated as your primary residence, and therefore which property is exempt from CGT. Plan this carefully as the exemption of a gain on one residence means the gain on the other becomes chargeable. You must elect your main residence within two years of purchasing the second one.
PENSIONS & INVESTMENTS
You can pay up to £40,000 a year into a pension scheme. Unused allowances from the last 3 years can be used if you were a member of a qualifying pension scheme.
OUR TOP TIPS:
– Review your allowances. The £40,000 allowance is reduced by £1 for every £2 of an individual’s total income over £240,000. If your income exceeds £312,000, you have a £4,000 allowance plus any unused allowances from the last 3 years.
– Close to retirement and looking to take advantage of income flexibility from your pension? Again, maximising pension contributions might be your last chance, before triggering the money purchase annual allowance of just £4,000 each tax year, with no carry forward.
– The Lifetime Allowance is the amount of money you can hold in pension schemes without facing penalty tax charges when you take pension benefits. For 2022/23 this figure is £1,073,100 – so make sure you check if your pension pot is at or around this number.
– Take advantage of your ISA allowance, which is currently £20,000. You can also invest up to £9,000 for any children under 18.
– If you’re aged 18-39 you can open a Lifetime ISA and put in up to £4,000 a year until you’re 50. The government will add a 25% tax-free bonus to these savings, up to a maximum of £1,000 a year. This £4,000 counts towards your £20,000 annual ISA limit.
INHERITANCE TAX
Inheritance Tax (IHT) is charged at 40% on the part of your estate (property, money and possessions) that’s above the £325,000 nil rate band (NRB).
OUR TOP TIPS:
– You can give up to £3,000 each tax year, and if this amount is unused it carries forward for one year. These gifts can be exempt from IHT as soon as they are made. It’s also possible to make regular gifts out of your after-tax income if you have surplus income. It is important to keep records of gifts so that your representatives have a clear record when they’re dealing with inheritance tax after you’re gone.
– Make a will; dying without one may increase tax and mean that assets are not distributed as you wished.
– Review the size of your estate and your will to make sure you benefit from the residence NRB. This is an additional amount up to £175,000 available on top of the individual NRB where the deceased has left a residence to his or her direct descendants.
STATE PENSION
If you’re eligible for the new state pension (men born after 5 April 1951 and women, after 5 April 1953) you have until 5 April to make up any gaps in your contribution history for the tax years between April 2006 and April 2016. After 6 April 2023, you’ll only be able pay voluntary NI contributions to plug gaps in the last 6 years.
OUR TOP TIPS
– It only makes sense to plug gaps if you won’t achieve a full state pension (35 years of NI contributions).
– Understanding whether you should top up your state pension is complex. Obtain an up-to-date state pension forecast from your government gateway account. This will also provide you with your contribution history, any gaps and the cost to plug them. Then contact the government’s Future Pension centre on 0800 731 0175. Only they can advise whether it will be worth topping up your state pension.
– Bear in mind, if you look to top up your state pension and it puts you into a higher tax bracket, this could also change the position for you.
GET IN TOUCH
This information is not a personalised recommendation, you should always speak to your adviser to get tailored advice before taking action. Contact us here.
Tax efficient investments involve putting your money at risk, past performance of an investment doesn’t guarantee what will happen in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in.
Tax planning advice is not regulated by the FCA.
This information represents our understanding of law and HM Revenue & Customs practice as at 21 Feb 2023 and may change if legislation changes.
