With the end of the tax year fast approaching on 5 April, it makes sense to assess your tax situation and make use of the reliefs and allowances available to you.
Here are a few quick wins you can consider to help reduce your liabilities now and in the future:
Inheritance Tax (IHT)
Each tax year individuals are allowed to give away up to £3,000 worth of assets or cash without it being added to the value of their estate, referred to as your ‘annual exemption’.
If you have any unused annual exemption, this can be carried over to the next tax year. Much larger gifts can be made, but would be classed as a Potentially Exempt Transfer, and subject to the 7 year inheritance tax clock – speak to us for advice.
Capital Gains Tax Allowances
Capital Gains Tax (CGT) is charged when you sell or dispose of an asset and make a profit. You are only taxed on the amount you gain from the sale or disposal.
UK residents can make a certain amount of gains each tax year before being charged CGT, this is known as the Capital Gains Tax Exemption.
The figure for 2022/23 is £12,300 but this will fall to £6,000 for 2023/24, before being reduced to £3,000 for 2024/25.
You should ensure that you are using your CGT Exemption before the end of the tax year and plan disposals to take advantage of the current higher rate. Splitting assets between husband and wife may be possible and is something we can advise further on.
Personal Allowance (PA)
Each individual is entitled to their own personal allowance (PA) for income tax purposes, which is set at £12,570 for 2022/23.
Part of the PA can be transferred between spouses and civil partners. The Marriage Allowance of £1,260 can be transferred, but only where neither spouse/civil partner pays tax at the higher rate. This might be beneficial where one partner doesn’t pay tax or earns less than the personal allowance.
Annual Pension Allowance
Ensuring you have made full use of your annual pension allowance is an important way to save tax, and in some cases to reduce taxable income.
The annual allowance is currently £40,000 for most people, however you can only receive tax relief up to 100 per cent of your earnings. There are some restrictions for higher earners.
Unused allowances can be carried over several years if previously unused – our financial services team would be happy to advise in this area.
Individual Savings Accounts (ISAs)
You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. You can pay your whole allowance of £20,000 (for 2022/23) into a Stocks and Shares ISA, a Cash ISA or any combination of these.
Taking advantage of these allowances will save you and your business money. It is good practice to repeat the process every tax year. For the latest tax planning advice, please get in touch.