Things to do before 5 April 2024
(Tax tips)

Introduction

As we approach the end of the tax year, it’s crucial for individuals and businesses alike to review their finances and take advantage of any tax planning opportunities available. In this blog post, we’ll explore some essential tax planning tips to help you minimize your tax liabilities and make the most of your finances before the 5th of April 2024 deadline.

1. Utilize Your ISA Allowance

Individual Savings Accounts (ISAs) offer a tax-efficient way to save and invest. For the tax year 2023/2024, the ISA allowance remains at £20,000. That can be paid into either a Cash ISA, a Stocks and Shares ISA or a combination of the two. Next tax year the limit is due to remain the same, but, if you don’t use it you lose it!

By maximizing your ISA contributions before the end of the tax year, you can shelter your savings and investments from income tax and capital gains tax.

2. Save for your children

If you have children or grandchildren, the Junior Individual Savings Account (JISA) is worthy of consideration. Contributions are limited to £4,260 per tax year, but it has the same tax benefits as an adult ISA.

You can pay into a JISA on behalf of your child up to age 18, but your child can take control of the account at 16. No withdrawals are allowed before 18, however. Again, if you don’t use the full JISA allowance in the tax year, the remainder does not roll over and will be lost. The better JISA providers will allow multiple contributors, so it’s a great way for grandparents to help out.

3. Avoid falling into 60% tax trap

If your income exceeds £100,000, your personal tax-free allowance of £12,570 is reduced by £1 for every £2 earned above this threshold. This may result in a tax rate of 60% on income between £100,000 and £125,140. One effective strategy to mitigate this is by contributing earnings above £100,000 into your pension. More to follow on this.

4. Take Advantage of Pension Contributions

Contributing to a pension is not only a smart way to save for retirement but also offers significant tax benefits. For the 2023/2024 tax year, the annual allowance for pension contributions stands at £60,000, with the ability to carry forward unused allowances from the previous three tax years. The annual allowance is tapered (reduced) for higher earners. It is reduced by £1 for every £2 someone earns over £260,000 (including pension contributions). For high earners, the Annual Allowance may be as low as £10,000.

By maximizing your pension contributions, you can benefit from tax relief at your highest marginal rate and reduce your taxable income.

5. CGT Allowance: Use it or lose it

If you’ve realized capital gains during the tax year, consider utilizing the annual exempt amount, which for 2023/2024 is £6,000 for individuals, further reducing to £3,000 next year. By carefully timing the disposal of assets and utilizing exemptions and reliefs, you can minimize your capital gains tax liabilities.

If you make any losses, you can use them to reduce any gains made in the same tax year. If you make more losses in a year than gains you should report them on your tax return, as they can be carried forward to reduce gains in future years. If you have forgotten to report losses, you can claim them up to 4 years after the end of the tax year in which the losses were incurred.

6. Utilize Marriage Allowance

Marriage Allowance allows individuals to transfer a portion of their personal allowance to their spouse or civil partner, potentially reducing their tax bill. For the 2023/2024 tax year, the Marriage Allowance enables the transfer of up to £1,260 of personal allowance. Couples should ensure they claim this allowance if one partner is a non-taxpayer or pays tax at the basic rate.

7. Consider Inheritance Tax Planning

Inheritance Tax (IHT) can significantly erode the value of your estate, but careful planning can help mitigate its impact. Utilize annual gift allowances, including the £3,000 annual exemption and small gifts allowance of £250 per recipient.

Most lifetime gifts do not immediately trigger IHT and become totally exempt if you survive for 7 years (dependent on the amount and how the gift is made).  You can give away up to £3,000 worth of gifts a year plus £250 to as many individuals as you like in a year, as well as £5,000 to your children when they are married (£2,500 for grandchildren or £1,000 to any other person).   

8. Investments in tax relief schemes

An investment into a qualifying Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) attracts significant tax benefits. These benefits include a credit off set of up to 50% of investment against last 2 years of tax, CGT exemption, IHT exemption, loss relief, CGT deferral relief etc.

These investment schemes should be viewed as high-risk investments and are only suitable for UK resident taxpayers with certain personal circumstances. 

Conclusion

Effective tax planning is essential for individuals and businesses to optimize their finances and minimize tax liabilities. By implementing these tax planning tips before the 5th of April 2024 deadline, you can ensure you’re making the most of the available tax reliefs and allowances. However, tax planning can be complex, and it’s advisable to seek professional advice to tailor strategies to your specific circumstances. At Naail & Co Chartered Certified Accountants, our team of accountants and tax advisors is here to help you navigate the complexities of the UK tax system and achieve your financial goals. Contact us today to discuss your tax planning needs.