The tax year ends in April 2023, more specifically, on the 5th of April. A tax year runs every year from April to April and indicates the period in which your tax allowances refresh for another year. In this article, provided by Tree Accountancy, we will delve into how to review your tax plans in time for the tax year end and anything else you should be considering as April 2023 approaches. So what is tax planning?
Understanding Tax Planning
Tax planning is of high importance for a successful business, whilst also being very useful for individuals who wish to efficiently manage their wealth. In vulnerable financial markets, tax planning is more important than ever and can help you set yourself up financially for the future, including for retirement.
Tax planning consists of exploring a number of avenues. By making use of all available tax allowances, tax planning will work to minimise one’s tax liability. This can be done by both businesses and individuals. Usually, tax planning is completed by a professional tax adviser who is well-trained in offering advice and guidance when it comes to tax allowances and more.
To make the most of your annual tax free allowances, you should be doing this before the end of the tax year, which is why now is the perfect time to begin reaching out to accountants and tax advisers to guide you through tax planning.
Things You Can Do Before The End Of The Tax Year
There are a number of things you can consider doing before this tax year ends, all of which could provide you with benefits for your financial future. This includes the following:
Topping Up Your ISA
Every tax year the government allows you to put money into an ISA (Individual Savings Account). In the current tax year you can put up to £20,000 in savings across one or multiple types of ISA on a tax-free basis. However it is important to note that there is a limit of £4,000 in a Lifetime ISA in a single tax year. Once the tax year ends
Making Use of Your Capital Gains Tax Allowance
Each individual in the UK has an annual capital gains tax-free allowance of £12,300 and £6,150 for trusts. Your tax-free allowance allows you to sell or dispose of certain assets, and you won’t be taxed on the profits if they are below £12,300.
It is worth noting that any transfers between spouses take place at ‘no gain, no loss’, meaning that if you plan to sell an asset, it may be worth transferring half of this asset to your spouse before selling, so as to maximise use of both of your annual CGT exemption amount.
It is very important to note that following the Autumn Statement from the Chancellor, the CGT allowance will be cut to £6,000 per individual and will halve again in the 24/25 tax year. With these significant changes incoming, it is important to speak with a professional about selling your assets and what you can do to take advantage of your current tax-free allowance.
Separate from inheritance tax, while still alive you have what is known as a ‘gift allowance’. This equates to gifts worth up to a total of £3,000 or cash of the same value. Those who wish to give away assets or cash gifts to family members, for example, can do so up to the value of this amount without it being added to the value of their estate for inheritance tax purposes when they die. There are separate allowances, however, for items such as wedding gifts.
As well as reducing the allowance on capital gains tax, Jeremy Hunt included dividend allowance into his tax changes for the next tax year. This means the current dividend tax-free allowance of £2,000 will be halved to £1,000 from 2023 and halved again in the tax year of 2024/25. Your dividend allowance is the amount you can earn from company dividends before paying dividend tax on your earnings.
The Annual Allowance For Pension Savings
The current limit sits at £40,000. This means that you can build-up this amount of money tax-free in your pension throughout a single tax year. However, it is worth noting that this figure is entirely dependent upon your individual circumstances, particularly your annual salary. If you have not exceeded your tax-free allowance, you may wish to consider topping up your pension before the tax year ends.
Accessing Tax Planning Services
As with any financial decision, it is very important that you seek the advice of a professional tax adviser or accountant. They will be able to advise you, taking caution to pay close attention to your individual earnings and financial situation, since no two scenarios are the same.