Tax planning and advice for individuals- Tax Advisors

Minimising your personal tax liability requires regular review and clear personal tax planning strategies for yourself and your family. Ensuring you are managing your income and personal wealth in the most tax efficient way is key to saving tax.

Before the tax year end, it is important as a contractor, landlord, self-employed person or business owner to get personal tax advice. In this blog we provide some advice and tax tips on key areas to provide you with maximum tax efficiency.

2023/24 tax year end

The current tax year ends on the 5th April 2024 with the 6th April 2024 being the first date in the 2024/25 tax year. Before the tax year end it’s important to review all the key areas below to ensure you minimise your tax liability and benefit from tax relief where appropriate.

Speak to your accountant early in 2024 to work through the areas below to ensure you pay less tax.

Before the tax year end, it’s important to ensure you’ve maximised the use of your annual allowances, claimed appropriate tax relief and get your tax affairs in order.

Self assessment tax returns

Deadline for submitting an online self assessment tax return is midnight 31 January 2024.

Deadlines for paying tax you owe is midnight 31 January 2024. There’s usually a second payment deadline of 31 July if you make advance payments towards your bill (known as ‘payments on account’).

You’ll usually pay a penalty if you’re late. You can appeal against a penalty if you have a reasonable excuse.

HM Revenue and Customs (HMRC) must receive your tax return and any money you owe by the deadline.

Calculate estimated tax payments

It is important to keep track of your personal tax situation and potential payments to avoid penalties.

Getting professional advice could be key to saving tax and understanding your tax obligations and payments. Working with your accountant and getting your tax return submitted early or on time will ensure you have an understanding your personal tax liability and minimising this liability before the year end.

A well thought out tax planning strategy is vital to pay less taxes.

Income management

Firstly, personal tax is based on annual income levels so you need to be aware of what your income is this year and what you anticipate it to be in the future so you can do some planning to reduce the tax.

We understand you do not want to reduce your actual income, just organise your tax affairs better so you pay less tax. Here are some good reasons for planning income variations:

• Have you earned enough this tax year to use your personal allowances?
• Have you earned enough to earn your national insurance credits?
• Have you or will you stray into the next tax bracket?
• What is changing and can you exploit this for example getting married etc?

If you are in business in your own right, whether as a sole trader, the director of a company, or just a rental property owner, then you may have the opportunity to plan some variations in your personal income, so consulting a tax adviser is recommended.

Potential areas for tax savings

There are many areas to focus to get your personal tax affairs in order and where savings can be made including:

• Income tax
• Dividends
• Pensions
• Savings and investments
• Inheritance Tax
• Gifting and charitable donations

If you own a limited company, you should understand and work with your accountant on tax-efficient ways to pay yourself if you run a limited company.

Income tax

Every UK resident taxpayer is entitled to a tax-free Personal Allowance which is £12,570 for 2023/24. Your Personal Allowance reduces (down to a minimum of £0) when your income exceeds the current limit of £100,000.

You lose £1 of the allowance for every £2 of income over that limit. For example, if your taxable income is £125,140, your allowance is reduced by £12,570 (i.e. your Personal Allowance would become £0). This means that if your income falls between £100,001 and £125,140 you have an effective rate of tax rate of 1½ times your usual rate of tax (within that banding you are effectively paying 50.625% tax on dividends, or 60% tax on other income).

You will have no Personal Allowance where your income exceeds £125,570.

The personal allowance has been frozen at £12,570 from 6 April 2024.

Income Tax Tips

Save tax by spending - If your income falls above one of the thresholds, consider reducing your tax liability through tax-efficient spending. You can do this by making pension contributions, investing in tax-efficient investments or charity donations.

Utilise your spouse’s Personal Allowance - Many limited company business owners pay their spouse a salary – typically, anything up to the Personal Allowance limit (£12,570 in 2023/24).  If the spouse has no other taxable income, they will not pay tax on their salary and the business saves Corporation Tax also.

Transfer your Personal Allowance - If spouse or civil partner doesn’t use all their Personal Allowance, consider jointly electing to transfer an element to you (if you are a basic rate taxpayer) to reduce your overall tax burden.

Dividends

As a limited company business owner, dividends can be used as part of a tax strategy to pay yourself. The first £1,000 of dividends are tax-free regardless of which tax rate band into which you fall. The Dividend Allowance is reduced from £1,000 to £500 as from 6 April 2024.

Dividend Tax Tips

Dividend levels - Dividend tax rates are generally lower than other tax rates. However, dividend does not count against profits for Corporation Tax and with Corporation Tax rates now between 19%-25%, and given that the main rate of Class 1 National Insurance for employees is reducing from 12% to 10% on 6 January 2024, it may be time to review how you pay yourself in 2024 and beyond. Seek advice from personal tax specialists such as dns accountants.

Family shares/assets - As an owner of a limited company, you may want to consider who else in your family could hold shares, to make use of their allowances. You could create jointly-owned shares as income from jointly owned assets is shared equally for tax purposes., You could submit an election to HMRC to split income proportionally in line with the ownership of the asset.

Capital Gains Tax (CGT)

You have an annual exemption for CGT for the tax year which is £6,000 for 2023/24. The annual exemption is reduced to £3,000 as from 6 April 2024. It is not possible to carry this exemption forward.

Married couples and civil partners can transfer assets between themselves at no gain/no loss. This means you can crystallise combined capital gains of £12,000 without being subject to tax.

CGT Tax Tips

Utilise the CGT exemption - Because the annual exemption can’t be carried forward or transferred, you should aim to make disposals on or before 5 April 2024 to use this year’s exemption.

Transfers - Capital assets can potentially be transferred to, or split with, spouses or civil partners before sale allowing them to utilise their own annual exemption and standard rate band.

Timing - Timing the disposal of an asset may affect the amount of CGT you pay. For example, if you are a higher rate taxpayer in this tax year but may drop back to being a lower rate taxpayer in the next tax year, then disposing of an asset when you are a lower rate taxpayer may reduce the CGT payable.

Capital losses - Capital losses can be offset against capital gains in the same year or carried forward to offset against future capital gains above the annual exemption. So, consider the timing of the disposals of assets to realise losses to reduce future Capital Gains Tax liabilities. Claims need to be made to HMRC for such losses.

Pensions

There is a Pension Annual Allowance (AA) for pensions meaning you can contribute up to £60,000 a year (including employer and personal contributions) into a pension scheme. In the three years before 2023/24 the AA was £40,000.

Employer Pension Contributions are extremely tax efficient. If you are a limited company owner. The company can make employer pension contributions on your behalf to maximise the Annual Allowance (AA) including any unused AA brought forward from the previous three tax years.

The company can claim tax relief on the employer contributions, provided these are not considered excessive and can be used to reduce the company’s Corporation Tax bill.

If you haven’t made use of your full Annual Allowance in the previous three years and were a member of a qualifying pension scheme, you can utilise this unused allowance in the current tax year.

If you are a higher or additional rate taxpayer you can save Income Tax by making personal pension contributions for the tax year.

You must have sufficient earned income (principally employment income or trading profits) to cover the personal contributions.

You can make personal contributions on behalf of your family, with the contributions going to their respective pension funds. This can include your children, grandchildren and members of your family who are not working.

Pension lifetime allowance

The total value of your pension savings is subject to a Lifetime Allowance (LTA), currently £1,073,100 for 2023/24.

Savings and investments

It is possible to also save and invest in a tax efficient manner. See below:

Individual Savings Accounts (ISAs)

The ISA limit for the 2023/24 tax year is £20,000. This limit cannot be carried forward therefore, if you don’t utilise the full allowance in the tax year, it will be lost.

Lifetime ISA

You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year, until you’re 50. You must make your first payment into your ISA before you’re 40.

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2023 to 2024 tax year.

Junior ISA

Anyone can pay money into a Junior ISA, these can be cash or stocks and shares ISAs. The total amount paid in cannot exceed £9,000 in the 2023 to 2024 tax year. Children will only be able to hold one Cash Junior ISA and one Stocks & Shares Junior ISA at any time.

Seed Enterprise Investment Scheme (SEIS)

The SEIS was introduced by the government to encourage individuals to invest in shares issued by qualifying, unquoted companies established in the UK.

You can invest up to £200,000 per tax year and receive income tax relief of up to 50% of the amount invested.

The relief can be claimed against the current tax year and/or previous tax year’s personal tax liability. There are also Capital Gains Tax and Inheritance Tax benefits of SEIS. Consult a financial planner or your accountant for more advice.

Enterprise Investment Scheme (EIS)

You can invest up to £1m in a tax year or £2m if the company is a ’Knowledge Intensive Company’. Your tax liability is reduced by 30% of the sum invested. The relief can be claimed against the current tax year and/or previous tax year’s income tax liability.

Inheritance tax (IHT)

IHT is payable at 40% if your net estate on death totals more than the tax-exempt bands. These tax-exempt bands are as follows:

• Nil Rate Band (NRB) £325,000
• Residential Nil Rate Band (RNRB) £175,000.

Spouses and civil partners are charged IHT separately, so the exemptions apply to each individual. Spouses and civil partners can make transfers to each other, in their lifetime and on death, free of both IHT and CGT.

Each individual will have a maximum combined NRB/RNRB of £500,000. Subject to the overall limit on taxable estates above £2m applying to the RNRB.

IHT can often be reduced through careful and timely planning, so it is worth seeking advice from a qualified tax advisor as it could save you and your family tens of thousands of pounds with careful IHT and personal tax planning.

Gifting

Lifetime gifts are cash or assets gifted by the person who died while they were still alive.

Every individual has lifetime gift allowances – amounts they can give away without affecting their inheritance tax bill.

• Annual exemption – up to £3,000 (if you have not used last year’s allowance then you can use that this year too)
• Wedding exemption – up to £1,000 per person (£2,500 for a grandchild or great grandchild, £5,000 for a child)
• Normal Gifts out of income” exemption – must happen regularly and not affect your standard of living e.g. regular Christmas or birthday presents or even a grandchild’s school fees paid from a large monthly pension.
• Spouse exemption – there is no limit on lifetime gifts between spouses who both live in the UK permanently.
• Assistance with another’s living costs e.g. elderly relative
• Donations to charity or political parties Ÿ Small Gifts – up to £250 per recipient per year (if not in receipt of one of the above)

Any gift that is not tax free when made, under one of the above, could incur inheritance tax, if you die within 7 years – so do use these allowances. The recording of significant gifts and loans is recommended, including terms and allowances being used.

Charity donations

A reduced rate of IHT applies where 10 per cent or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil-rate band) is left to charity. In those cases, the current 40 per cent rate will be reduced to 36 per cent.

Trusts

Trusts can be a useful mechanism to protect assets and beneficiaries and can be created and utilised during your lifetime and on death.

When considering IHT planning, it’s important to consider all IHT reliefs and exemptions. IHT can be a complex area, so seek advice from your accountant before taking any steps.

IHT Tax Tips

Gifting to family - Start the seven-year ’clock’ running by gifting assets during your lifetime to minimise the IHT payable on your death.

Gift-aid donations- Gift-Aid donations work in a similar way to pension contributions. When donating to charity, you can sign up to Gift-Aid – hence advising the charity that you are a UK income taxpayer. This enables the charity to ask for a basic rate tax refund on that donation. This increases every £100 you donate into £125. But you too can benefit, because just like pension contributions you can put the donation on your personal tax return and get higher rate tax relief.

Other areas of tax to consider

For many business owners, personal wealth and tax planning are also closely linked to business tax planning. In this blog we are focusing on individuals but corporate tax considerations, should also be part of your tax planning strategy. This includes areas such as Corporation Tax, Research & Development Tax, Family Investment Companies and Capital Allowances.

How can dns accountants help you?

Personal tax and the UK tax system can be complex, so seeking tax advice for your personal tax affairs can greatly reduce you tax bill. Personal tax planning should be undertaken annually or when your personal circumstances change, such as marriage, divorce, inheritance etc.

Personal taxes can be managed and planned as part of your overall family financial affairs and a wider financial plan.

Our experienced tax team help thousands of individuals every year save tax. To find ensure you’re not paying too much tax and find out how dns accountants can minimise your personal tax bill and assist you in your personal tax planning, contact us today on 03330 886 686 , or you can also e-mail us at enquiry@dnsaccountants.co.uk.

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