Tax planning is an ongoing process, and with the end of the 2023/24 tax year on the horizon, now is the perfect time to review your tax strategy.
In this guide, we outline what you should consider as part of your end-of-year tax plan to maximise savings and minimise stress in 2024. Here is what you need to know.
Personal tax planning
Allowances
Your personal allowance
Most UK taxpayers have a personal allowance of £12,570 each tax year. Any non-dividend income above this amount will be subject to income tax, while earners making more than £100,000 a year will face a higher marginal tax rate.
Company dividends are often taxed at a lower rate than salaries. As a result, topping up a salary with dividends is often a more tax-efficient way for company directors to extract funds.
Married couples and civil partners may also be able to use the marriage allowance to boost their household income further.
Capital gains tax allowance
The capital gains tax allowance will be less generous in the 2024/25 tax year, which means it is crucial to make the most of your allowance before the tax year ends.
Last year, Chancellor Jeremy Hunt reduced the tax-free allowance from £12,300 to £6,000. In April 2024, the allowance will halve to just £3,000. As a result, if you are currently selling an asset, it may be beneficial to expedite the sales process to make the most of the current tax year’s more generous allowance.
Tax-efficient savings methods
ISAs
Savers can invest up to £20,000 per tax year in ISAs without paying income tax or capital gains on the returns. This allowance will not roll over into the next tax year, so using this allowance before 6 April 2024 is essential.
The most tax-efficient way to save will depend on your personal circumstances, future goals and appetite for risk. You can invest the entire £20,000 sum in one ISA or split the allowance across different accounts. A personal tax adviser can help you secure the best deals and ensure that you get the most out of your savings.
Pensions
As of 6 April 2024, the lifetime allowance for pension contributions will be abolished. Currently in place, it means that you can save £1,073,000 without paying tax on your contributions, but every penny above the limit is taxed.
Furthermore, the annual allowance also increased from £40,000 to £60,000 last year. While you are permitted to save more than £60,000 annually, you will not receive tax relief on any pension contributions exceeding this total.
Estate planning
It is never too early to start your estate plan. Developing a strategy now will not only give you more control over how your assets are distributed after you pass, but will also minimise the inheritance tax due on your estate.
Giving gifts can allow you to pass your wealth on to the next generation in a tax-efficient way. Currently, you can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate.
Any unused gift allowance will roll over to the next tax year, so consider whether you have used your tax-free gift allowance for both the 2022/23 and 2023/24 tax years.
There is also the wedding gift allowance, which lets you give the following while escaping inheritance tax:
- £5,000 to a child
- £2,500 to a grandchild or great-grandchild
- £1,000 to any other person.
Business tax planning
Deductions and allowances
Capital allowances
Business owners can access tax relief by claiming capital allowances on certain assets purchased for business use. The amount you can claim will depend on which type of capital allowance you use, so it is vital to weigh up all your options.
Limited companies can also benefit from the full expensing scheme, which allows eligible businesses to deduct 100% of the cost of capital equipment from their profits in the year it is purchased.
Business expenses
Making the most of your business expense claims is essential for tax optimisation. Ensure you claim all allowable expenses, such as travel, accommodation, meals, and office supplies, to reduce your total taxable income.
It is also advisable to work with tax specialists to ensure that you maximise your business expense claims, reducing your taxable profits while keeping you compliant.
Corporation tax rise
The main rate of corporation tax rose from 19% to 25% last year, making it even more important to implement a solid corporate tax strategy.
Consider how much you expect your company will make this financial year. By anticipating your tax liabilities, you can mitigate any potential risk to your business before your financial year-end.
Creating a solid tax plan
The tax landscape is constantly shifting, which can make it difficult to stay compliant while minimising your tax bill. If you want to create a solid tax plan, you should work with a professional tax adviser.
At Business Partners, we know the tax system inside out. We will use our expertise to help you draw up a comprehensive tax strategy tailored to your unique needs. With our accountants on your side, you can manage your liabilities with confidence.
Talk to us about your business and personal tax planning.
