With the end of the tax year fast approaching, it would be prudent to consider your tax planning.
Please see below for our handy list of tips which can guide you to ensure you are making the most of your money and saving on your tabill this year.
- Make the most of free government money
It is important that you ensure you are claiming any ‘free money’ you are entitled to. Whether that is your state pension, your lifetime ISA, or any tax breaks available to you.
Please also remember to claim marriage allowance or tax-free childcare if you are eligible as you could receive a 20% top-up on money you use for childcare.
Furthermore, if you are just over the £50,000 limit for receiving child benefit, you can make larger pension contributions to reduce your salary and ensure you receive the benefit.
- Utilise ISA and pension annual allowance
ISAs and pensions are an excellent way to save for the future because any income and capital gains made on investments held in both are free from income tax and capital gains tax.
Please do not forget that ISAs cannot be carried forward to future tax years, so you should consider using them before the 5 April deadline.
- Protect your investments
If you have investments outside of your ISA, you can use something called ‘Bed and Isa’ to funnel them into an ISA where they will be protected from tax.
- Be mindful of high inflation rates
As of last month, inflation has peaked at 10.1%. Due to this, it is wise to not make an ISA subscription in cash.
It would be best to work out what you might need in the next five years as an emergency pot and see how that stacks up against the amount you have in cash.
If you have more than that set aside, think about investing it to obtain a higher return.
- Look at reducing your taxable income
If your taxable income creeps over the £100,000 threshold, you are at risk of losing a great deal of your personal allowance (£1 for every £2 of your income).
You can overcome this by reducing your taxable income through charity donations or by contributing to your pension.
- Track down your missing pensions
If you have changed jobs multiple times, as most people do, you may have multiple pension pots with several different providers. To keep on top of these, it would be best to track them down using the government’s pension tracking service.
Once you have done this, you can combine them with your existing provider, making them easier to maintain.
Therefore, you could more easily benefit from lower charges, greater investment choice and more flexibility in the future.
- Set up regular investing
It is easy now to set up a direct debit that will automatically transfer money into your investment account each month and then set up regular investing on your platform, which will automatically buy the funds or shares you’ve chosen.
Many investment platforms will allow you to start investing as little as £25 or £50 a month and you can always pause it if you decide to skip a month for any reason.
- Look into automatic dividend reinvestment
If you have dividends from investments in your ISA, these can be withdrawn tax-free, but if you do not need the income now you could use them to turbo-charge your returns.
If you reinvest them, you can buy more shares in the same investment, which can hugely impact the size of your ISA fund in the long term.
- Beat the dividend tax rise
The dividend tax is rising, with an extra 1.25% being added to all, regardless of the level of dividend tax you pay.
It is more beneficial than ever to put your income-producing investments inside an ISA, to protect them from the additional tax.
- Utilise CGT allowance
It is important to remember that the annual capital gains tax-free allowance cannot be carried forward into future years so if you do not use it before the end of the tax year, you lose it.
If you have investments with gains outside of an ISA or pension you should consider whether to realise it before the end of the tax year to make the most of your tax-free allowance.
11. Look into tax efficient investments:-
Enterprise Investment Scheme (“EIS”)
This is the most common investment relief and can provide the following tax benefits:
- Up to 30% income tax relief either against the current year’s tax bill or last year’s (carry back). This can be up to a maximum of £1m per tax year.
- Capital gains deferrals can be made by investing in an EIS qualifying investment.
- No capital gains tax liability on a sale if the shares are held for more than three years and some income tax relief was obtained.
- You can offset losses against income tax or capital gains if the investment doesn’t work out as hoped.
- If the EIS investment has been held for more than two years, it will be inheritance tax free.
Seed Enterprise Investment Scheme (“SEIS”)
This is a newer investment scheme than EIS – it is very similar but is designed for investment in smaller start-up companies.
The tax relief provided is even more generous, which reflects the acknowledgement that there is increased risk when investing in smaller companies. These reliefs include:
- Up to 50% income tax relief either against the current year’s tax bill or last year’s (carry back). This is up to a maximum of £200k post 6 April 2023.
- No capital gains tax liability on a sale if the shares are held for three years.
- You can reclaim up to 50% of a capital gains tax liability incurred in the tax year where an investment is made into SEIS (up to a maximum gain of £100k after 6 April 2023).
- Offset losses against income tax or capital gains if the investment doesn’t work out.
- Inheritance tax free as long as the investment has been held for more than two years and upon the person’s death.
Venture Capital Trusts (“VCTs”)
This type of investment is a publicly listed company which plans to invest in small, entrepreneurial companies.
VCTs provide the following tax benefits as long as the shares have been held for three years:
- Up to 30% income tax relief on maximum investments of £200k.
- Tax-free dividends.
- No capital gains tax payable on disposal
Contact us today for any guidance on tax planning ahead of the financial year.