February 22, 2023
Is your tax planning in tip-top health?
The current tax year ends on 5 April 2023, so now is a good time to review your finances and make sure you’re taking advantage of all the tax reliefs and allowances available to you, and minimising your potential liabilities.
If tax planning hasn’t been at the top of your to-do list until now, there’s no need to panic, as you still have time – but don’t delay for too long as April will be here before we know it!
Taking action now might allow you to take advantage some reliefs, allowances and exemptions, and you will also be able to consider whether there are any planning opportunities that you need to consider either for this tax year or for your long-term future.
What should be on your 2022/23 tax health checklist?
Everyone’s circumstances are different, but here is our list of top 10 tax health check items that we recommend everyone looks at when planning for the tax year-end:
1 – Personal reliefs
If you’re a married couple make sure you’re fully utilising both of your personal reliefs, and starting and basic rate tax bands. Could you make gifts of income-producing assets (which must be outright and unconditional) to distribute income more evenly between you both?
2 – Salary sacrifice
This is a particularly tax-efficient way for you to make pension contributions, as it allows you to save and to reduce your Income Tax and National Insurance. Have you considered making additional pension contributions?
3 – Pensions annual allowance
Unless you are an additional rate taxpayer or have already accessed pension benefits then you are entitled to make up to £40,000 of pension contributions per tax year. Have you fully utilised your tax-efficient contributions for this tax year? You may also still be able to take advantage of any unused allowances from the three previous tax years.
4 – Stakeholder pensions
A stakeholder pension is available to any United Kingdom resident under the age of 75. Children can also make annual net contributions of £2,880 per year, making the gross amount £3,600 regardless of any earnings. This is also a very tax beneficial way of saving for your children or grandchildren, to give them a bit of financial help for the future.
5 – Large pension funds
The Lifetime Allowance (LTA) is currently £1,073,100 and has been frozen at this level until the 2025/26 tax year. The maximum you can pay in is £40,000 per annum (unless you pay tax at 45% in which case the annual limit could be as low as £4,000).
6 – Pension drawdown
If you are 55 or over you could access 25% tax-free cash from your Defined Contribution (also known as Money Purchase) pension pots and invest the rest. But you do need to bear in mind that drawing large amounts in one tax year can lead to a larger tax bill than if spread over a longer period. We can help you to fully understand the implications of drawing down money from your pension pots.
7 – Individual Savings Accounts (ISAs)
An ISA allows you to save and invest tax-efficiently into a cash savings or investment account, with the proceeds shielded from Income Tax, tax on dividends and Capital Gains Tax. For the 2022/23 tax years the maximum amount you can put into your ISAs is £20,000. Have you fully utilised the maximum annual allowance for the year?
8 – Junior ISAs
This is a long-term tax-efficient savings account set up by a parent or guardian, specifically for the child’s future. Only the child can access the money, and only once they turn 18. There’s a maximum £9,000 allowance for 2022/23. Have you taken advantage of this for your child or children?
9 – Lifetime ISAs (LISAs)
The Lifetime ISA (LISA) is a tax-efficient savings or investments account designed to help those aged 18 to 39 at the time of opening to buy their first home or save for retirement. The government will provide a 25% bonus on the money invested, up to a maximum of £1,000 per year. You can save up to £4,000 a year, and can continue to pay into it until you reach age 50. Could you be taking advantage of this very tax-efficient option?
10 – Capital Gains Tax (CGT)
There are two different rates of CGT – one for property and one for other assets. If your assets are owned jointly with another person, you could use both of your allowances, which can effectively double the amount you can make before CGT is payable. If you are married or in a registered civil partnership, you are free to transfer assets to each other without any CGT being charged. It is currently £12,300 but will be reduced to £6,000 from 6 April 2023 and £3,000 from 6 April 2024. Time to make sure you’ve fully used your current £12,300 annual exemption.
We hope this checklist is a useful starting point for you. Remember that changes in inflation, the government allowances for a given tax year and interest rates can all have an impact on your finances, so it’s important to do a health check before the end of every tax year.
Some of the rules (and how they interact with each other) can get confusing – so if you’d like help to make sure you’re confident you’ve got everything in the best shape, please get in touch.
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