Maximising Your Tax Benefits: Year End Tax Planning Strategies
Posted on 20th February 2024 at 18:37
As we approach the end of the tax year, it's crucial for both individuals and businesses to conduct a thorough review of their financial landscape. This not only ensures the utilisation of available tax reliefs and allowances but also paves the way for strategic planning in the upcoming year.
Given the current economic climate, characterised by high inflation and a Bank of England base rate at 5.25%, the pressure on businesses and individuals is more pronounced than ever. Taking proactive measures in end-of-year tax planning makes it more important than ever to undertake a detailed review to identify any tax savings in the current year and plan for the year ahead.
The Chancellor has confirmed that the Budget is taking place on 6 March 2024, possibly introducing changes for the upcoming tax year. Key changes already scheduled for April 2024 include adjustments to Capital Gains Tax, Dividends Tax, Research and Development Tax Credits, National Insurance, and Pensions Annual Allowance.
Here are some important considerations for your end-of-year tax planning:
Personal Tax:
Income Tax and National Insurance:
• Utilise the personal allowance for income tax, currently at £12,570.
• Consider optimising salary payments to maximize personal allowances and minimize Class 1 National Insurance contributions.
Dividends:
• Take advantage of the current tax-free dividend allowance of £1,000 before it reduces to £500 in April 2024.
• If planning to pay dividends exceeding £500 in 2024/25, consider using the full £1,000 tax-free allowance from the current tax year.
Spouses and Civil Partners:
• Explore the option to transfer 10% of personal allowance to a spouse or civil partner to potentially reduce the tax bill.
Pensions:
• Leverage the increased Pensions Annual Allowance of £60,000 for the 2023/24 tax year.
• Ensure efficient use of additional tax thresholds, such as the £125,140 level triggering the additional rate of income tax.
Inheritance Tax:
• Make use of the £3,000 annual gift allowance for inheritance tax planning.
Tax-Efficient Investments:
ISAs:
• Consider ISAs as a tax-efficient saving option, with a maximum allowance of £20,000.
Enterprise Investment Schemes (EIS) and Seed EIS Shares:
• Explore tax relief benefits when investing in qualifying shares under EIS and Seed EIS.
Capital Gains Tax:
• Be mindful of the annual allowance for Capital Gains Tax, which is set to reduce significantly to £3,000 in the 2024/25 tax year.
• Consider balancing gains and losses to optimize tax liabilities.
Property Investment Businesses:
Mortgage Interest Relief:
• Review the implications of the reduced income tax relief on mortgage interest for buy-to-let investors since April 2020.
• Evaluate the merits of setting up a limited company for holding buy-to-let properties personally.
Business-Specific Considerations:
Group Structures:
• Review group structures for tax efficiency.
Annual Investment Allowances and Capital Allowances:
• Leverage the increased Annual Investment Allowance and explore eligible capital allowances for tax relief.
Research and Development Tax Relief:
• Explore R&D Tax Relief opportunities, applicable to a broad range of industries, and take advantage of changes introduced in April 2023.
Full Expensing Tax Relief:
• Understand the implications and benefits of full expensing on plant and machinery investments until March 2026.
IR35 for Private Sector:
• Stay informed about IR35 rules and ensure compliance, especially with the responsibility now placed on private sector clients to determine worker status.
Corporation Tax:
• Acknowledge the increase in Corporation Tax to 25% and incorporate it into cash-flow calculations.
Other Considerations:
• Evaluate accounting dates and consider aligning year-end dates with key business events.
• Assess the potential benefits of incorporating as a limited company.
In conclusion, meticulous end-of-year tax planning is essential to make the most of available allowances and relief opportunities.
For personalised advice and guidance, don't hesitate to reach out to our specialist tax team at [email protected]. Act now to secure your financial future!
Tagged as: Tax Benefits, Tax Planning
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