Year-End Tax Planning 2023

Income tax:

The tax-free personal allowance for the 2022/23 tax year remains at £12,570.

The allowance is reduced by £1 for every £2 that your income exceeds £100,000. Consequently, if your income is in excess of £125,140 you don’t have a personal allowance. It also means the effective rate of tax on income in the £100,000 – £125,140 range is 60%.

***Top Tip: From April 2023 the Additional rate threshold, which is currently £150,000 will be reduced in line with the above to £125,140. It may be worth considering bringing forward the payment of income to before 6th April 2023 before this reduction takes place.

Personal Pension contributions are an effective way of planning for your future retirement, whilst obtaining an extension to your basic rate tax band, thus reducing or removing you from the higher rates of tax.

Marriage Allowance – Where applicable you should also consider the potential transfer of 10% of the personal allowance between spouses or civil partners if one has income below the personal allowance and the other is a basic rate taxpayer.

Dividends and timing:

The first £2,000 worth of dividends from your business or shareholdings will be at a tax rate of 0%.

The dividend tax rates are as follows:

Tax bandDividend tax rate 2022/23
Basic-rate

(Income of £12,571 – £50,270)

8.75%
Higher-rate

(£50,271 – 150,000)

33.75%
Additional-rate

(> £150,000)

39.35%

***Top Tip: Please note that from April 2023 the dividend allowance will reduce to £1,000 and then £500 from April 2024, so voting of dividends in the current tax year to ensure this higher £2,000 tax-free allowance is maximised is sensible. Also, as above the reduction in the higher rate threshold to £125,140 from April 2023 means brining forward a dividend payment into this 22-23 tax year could be sensible tax planning.

 Capital Gains Tax:

Tax bandCGT on residential propertyCGT on other assets
Basic-rate18%10%
Higher-rate / Additional-rate28%20%

If you’ve sold a capital asset, or assets, for profit then you benefit from an allowance of £12,300. Your allowance can’t be carried forward meaning it makes sense to make use of it. After this the Capital Gains Tax (CGT) rate you’re charged depends on the asset you’ve sold and your tax band.

***Top Tip: From April 2023 the CGT Annual exemption will reduce to £6,000 and then £3,000 from April 2024, so if you are considering disposing of assets, this reduction is worth considering as there will be an increase in the CGT payable due to the allowance reduction.

Inheritance Tax and gifting within exemptions:

Common exemptions to potentially make use of include:

  • A tax-free allowance, known as the nil-rate band (NRB) of £325,000 (effectively renewable every 7 years whilst the donor is still alive)
  • A gifting annual exemption up to £3,000, which if unused in a tax year can be carried forward and used in the following year
  • Small gifts that can be given to as many people as you want in a tax year with a worth up to £250 each
  • Wedding gifts up to £5,000 for your child, £2,500 for a grandchild, and £1,000 for anyone else

Make use of Individual Savings Accounts (ISAs)

You have an allowance to invest up to £20,000 in an Individual Savings Account (ISA) in any given tax year. If you don’t use the allowance in that year then it is lost. There are different types of ISA for you to consider for your individual circumstances and what you’re trying to achieve.

Income and capital gains generated within an ISA are exempt from income tax and CGT. Making use of an ISA as a savings tool is therefore valuable for tax planning purposes, especially where pensions savings allowances have been maximised.

It is important to consider the investment implications of saving into various types of ISAs. We recommended you seek advice from an Independent Financial Advisor prior to making any investments.

Investment in the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

If you purchase shares in a business that qualifies as an EIS investment, then your tax liability can be reduced, for either the year of investment or the prior year under a carry back claim, by up to 30% of the amount you invested.

Investment in SEIS provides income tax relief of up to 50% of the amount you invested in either that tax year of investment, or the previous tax year under a carry back claim.

Any gain under EIS or SEIS is usually CGT free if the investment is held for at least 3 years. If your shares are sold at a loss, you can set that loss against income tax for that year, or the previous year.

Investment in Venture Capital Trusts

Venture Capital Trusts (VCTs) are specialist investments that offer tax breaks so that you can put money in small, high-risk organisations and securities. Investment in VCTs offers:

  • Income tax relief at 30% of the amount invested so long as the investment is held for a minimum of 5 years
  • VCT shares are CGT exempt, assuming they rise in value
  • Dividends on VCT shares are tax-free

Pension savings

You have a lifetime allowance, on the total amount you can hold for all your pension funds, of £1,073,100. Since 6 April 2014, there has been an annual allowance for pension contributions which currently stands at £40,000. The total for personal and employer contributions reduces by £1 for every £2 of an individual’s ‘adjusted income’ over £240,000 and the maximum reduction is £4,000 if income is over £312,000.

***Top Tip: The 2019/20 tax year unused pension allowance can be used up until 5th April 2023 for pension contributions.

Don’t wait till it’s too late to speak to us and see how our experts can help you ensure you maximise on your earnings & savings.

Contact Us Today at tax@enhance-professional.co.uk