Ten tax planning tips

As we approach a new tax year and the introduction of some updated allowances, here are ten tax planning opportunities to consider before 5 April 2024.

1. Pension contributions

Make a personal pension contribution before the end of the tax year and utilise your annual pension savings allowances which can only be brought forward for three tax years; tax relief could be available by way of increased tax rate bands.

If your income exceeds £100,000, you may lose part or all of your personal allowance, but personal pension contributions can help you avoid the reduction in your personal allowance, saving tax at an effective rate of up to 60%.

Please be aware that pension contributions are a complex matter with many variables affecting the amount individuals can contribute, with possible tax charges applied if limits are exceeded. Therefore, please seek advice from your tax and financial advisors before making any contributions.

2. Charitable donations

As with pension contributions, if you give cash contributions to charity using Gift Aid, you can get tax relief through rate band extensions, and can help mitigate any reduction in your personal allowance.

Donations can be carried back to the previous tax year, provided the previous return has yet to be submitted to HMRC.

3. Capital gains tax (CGT) allowances

For the current 2023/24 tax year, the tax-free capital gains allowance is £6,000 per individual. However, from 6 April 2024, this is reducing to just £3,000.

Therefore, it may be worthwhile considering any assets which are held at a gain and making disposals to utilise the annual exempt amount as any unused allowances can’t be carried forward. Furthermore, if capital gains in excess of the exemption have been realised, you may wish to consider crystalising capital losses before the end of the year.

4. Sale of residential property

As part of the recent Spring Budget 2024, the Chancellor announced that for properties exchanged from 6 April 2024, the higher rate of capital gains tax payable on the disposal of residential properties will be reduced from the current rate of 28%, to 24%, so consider the timing of sales.

Given the interaction between the reduction in the annual exempt amount and the reduced rate of capital gains tax, the timing of sales should be considered.

Read our recent blog for more information.

5. Remuneration from your personal company

For the 2023/24 tax year, all individuals have a £1,000 dividend allowance, which allows dividend income up to this limit to be received tax free. However, from the 6 April 2024, this limit will be reduced to £500.

Consider the timing of dividends voted by your personal company to utilise the available allowance by shareholders.

Changes to corporation tax rates should also prompt company owners to reconsider their optimum overall remuneration package and split between salary and dividends. Such position will depend on individual circumstances.

6. Capital allowances

Sole traders or partnerships should consider investing in any necessary plant or machinery before the end of the tax year. This could attract 100% capital allowances which will reduce taxable profits and lower the overall tax bill. 

7. Tax efficient investments

Investments such as Venture Capital Trusts (VCT), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) are investments in small, unquoted trading companies. There are beneficial tax reliefs for these investments, including income tax relief (up to 30%) in the year of investment or the prior year.

Any dividends received for VCTs are exempt from tax and EIS/SEIS investments can benefit from capital gains tax deferral relief.

Given the nature of these investments, there are significant risks to capital, therefore, please seek advice before making such investments.

8. Marriage allowance

Where one spouse’s income is and the other is a basic rate taxpayer, you can transfer 10% of the lower earner’s personal allowance to the higher earner, reducing combined income tax payable by up to £252 per tax year. This can also be backdated for up to four tax years.

9. Inheritance tax exempt gifts

Each tax year an individual can gift £3,000 free from inheritance tax. If no significant gift was made in the previous year, this allowance can be doubled.

10. ISA subscriptions

Each year, an individual can invest £20,000 into an ISA. ISAs are tax efficient investments either held as cash or stocks and shares. The income and gains arising from the funds are exempt from income and capital gains tax.

If you’d like to discuss these points in more detail, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Jordan Smith