Tax year end planning after the Autumn Statement
Post by Mearns & Company in News
With the tax framework for the next few years now clear, your year end tax planning comes into even sharper focus.
Jeremy Hunt’s Autumn Statement was more than just a reversal of the tax-cutting plans of his briefly empowered predecessor. In the view of two well-respected think tanks, it marked the country entering a “new era of high taxation”. That viewpoint is hard to dispute, given the increases to dividend tax, capital gains tax and corporation tax alongside a multitude of tax allowances frozen until April 2028.
The grim contents of the Autumn Statement make tax year end planning especially important in 2023, with new deadlines having been created. Among the areas to consider are:
Capital gains tax The current individual exempt amount of £12,300 of gains will drop to £6,000 on 6 April 2023 and then halve to £3,000 a year later. You should consider realising your investment gains up to the annual exempt amount before the axe falls. If you wish to retain the investment, then you may need to reinvest via an individual savings account (ISA) or a pension. Anti-avoidance rules make direct reinvestment within 30 days ineffective for tax purposes.
ISAs The main limit on ISA annual contributions has been frozen since April 2017 at £20,000. With tax allowances for capital gains and dividends being slashed over the next two tax years, your aim should be to maximise your ISA input. If you hold cash ISAs, review both the interest rate being paid (it probably has not kept pace with base rate) and whether switching to a stocks and shares ISA would now provide greater overall tax benefits if that suits your approach to risk.
Pension contributions Pension contributions should usually be made before the end of the tax year. This advice still stands if you want to carry forward up to £40,000 of unused annual allowance from 2019/20 as 5 April is the last day to do so. Otherwise, the reduction in the additional rate tax threshold in 2023/24 means you may receive more tax relief by delaying your contribution to the new tax year.
Income timing In Scotland, the higher rate tax threshold (£43,663) remains frozen in 2023/24 but the additional rate threshold will be cut from £150,000 to £125,140, in addition the higher rate of tax will rise from 41% to 42% and the top rate will rise from 46% to 47%. Accelerating receipt of income to the current tax year could save you tax, although it might also mean you pay (less) tax sooner. If you are a shareholding director, you may want to bring forward a dividend payment to before 6 April 2023. Similarly, you could hasten interest payments by closing a deposit account – but beware of any early closure penalties.
Inheritance tax The Autumn Statement froze the inheritance tax (IHT) nil rate band (NRB) and residence nil rate band for another two years, to April 2028. Had the NRB been inflation-proofed since it was fixed in April 2009, it would be over £140,000 higher next April. IHT year end planning takes advantage of the various annual exemptions which, with one limited exception, cannot be carried forward. In 2022/23 lifetime gifts of existing investments are also worth considering, taking advantage of the current CGT annual exempt amount and lower market values.
As ever, the sooner you start talking to us about your year end planning options, the better. This is especially the case if you wish to carry forward unused pension annual allowance, which may require slow-to-arrive third party information.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
For specialist tax advice please refer to an accountant or tax specialist.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.