The start of the tax year brings new tax allowances and is a chance to look at maximising your tax planning. The Budget in March 2023 also made more changes than we have become used to in areas like Capital Gains Tax (CGT) and pensions, so there are lots of opportunities!
These are some of the main tax planning allowances to consider for the tax year 2023/24.
Income Tax and Other Allowances.
The personal allowance (the amount you can earn before you pay income tax) is unchanged at £12,570. The higher rate threshold is unchanged at £50,270, and both are now frozen until 2028.
The personal savings allowance allows you to earn interest tax-free remains at £1,000 (but only £500 for higher rate taxpayers). The dividend allowance, the tax-free amount you can earn from investments before paying tax, has halved to £1,000, and will reduce further to £500 from April 2024.
Action point. As interest rates have risen, you may be in danger of exceeding your allowances.
- Consider rebalancing investments so that each individual in the couple has enough income covered by their personal allowance.
- Look at the underlying investments to produce income or capital only, or look at a tax wrapper.Fill Up Your ISA.The ISA allowance for 2023/24 tax year stays at £20,000 and at £9,000 for Junior ISAs.ISAs remain one of the simplest tax planning vehicles – there are no complicated structures, just an open wrapper in which different investments can be placed; or held in cash temporarily. For many, when they think of ISAs it is only of Cash ISAs – and with falling interest rates the returns on these have been disappointing. Stocks & Shares ISAs offer an alternative, and don’t have to go into risky market-based investments if that doesn’t suit you.Once savings are within ISAs, they are free from Capital Gains Tax and Income Tax. Even if built up slowly, the long-term benefits of ISAs add up; especially for generating a tax-free income in retirement.
Capital Gains Tax (CGT).
The CGT allowance (how much profit you can make before you pay CGT) has decreased from £12,300 to £6,000 – and will decrease further to £3,000 in 2024.
Action point. Any assets outside a tax wrapper (ISA or pension) could be liable for CGT.
• Consider rebalancing investments so that each of a couple has enough income covered by their personal allowance,
Don’t Forget Your Pension.
Pension rules have made a big difference, and the tax relief on pension contributions can boost investments. For a basic rate taxpayer, investing £1,000 into an ISA requires £1,200 salary before income tax (plus national insurance). To put £1,000 into a pension costs just £800 as £200 tax relief is added. For a higher rate taxpayer, the net contribution is effectively £600 as £200 is given as relief through your tax return.
Pension annual allowance increased. You can now save up to £60,000 into a pension each year (up from £40,000) – and “carry forward” maybe available to use allowances from previous years.
Action point. What do you currently contribute to your pension? When was that figure last reviewed?
Lifetime Allowance Abolished. One big change in the budget removes the previous limit on how much could be saved within a pension (£1,073,000) before an additional tax charge was applied.
Pensions remain outside your estate for Inheritance Tax purposes so now provide an even bigger opportunity to pass on assets to your beneficiaries.
Action point. Consider reviewing the balance between pension and non-pension assets.