Exploit Your Annual Allowances Before 5 Apr 2023
With exactly 2 months to go before the 2022/23 tax year comes to an end, it’s perhaps time for you to review your financial affairs to identify areas to optimise your tax liability, both present and future. A host of changes will take effect from 6 April 2023, predominantly a reduction in the allowances available for dividends and capital gains. Others such as one’s personal allowance (typically £12,570 per annum) will remain frozen until 2028. In this article, we will explore various allowances which you may seek to use up in the next 2 months to ensure you’re a step ahead of the curve and can curb your prospective tax bill.
Dividend Allowance
Perhaps the most hard-hitting measure of all announced by Chancellor Jeremy Hunt in his autumn statement was the reduction in the dividend allowance from its extant level of £2000 to £1000 from 6 April 2023. In addition, it will be halved further to £500 from 6 April 2024. Should you be operating an owner-managed business which enables you to control the way you remunerate yourself, paying yourself via dividends is perhaps the most common means of tax-efficiency you would’ve engaged in over the past few years. Provided your company has sufficient retained earnings, it would be beneficial to declare a £2000 dividend even if you don’t need it. Should you need to declare one after 6 Apr 2023, perhaps to make your Director’s Loan Account positive, it could adversely affect your tax affairs by as much as £87.5 (£1000 x 8.75%).
Capital Gains Tax (CGT) Allowance
Another drastic measure in the Autumn statement was the reduction of the CGT allowance from £12,300 to £6000. Alike the dividend allowance, it will also experience a further 50% cut in April 2024 to just £3000. CGT is payable by individuals on long-term assets including shares, paintings, jewellery, houses other than primary residence, non-wasting chattels such as antiques or valuable artifacts. Should you be considering a sale of such assets at the moment, it might be most beneficial to exchange contracts before 5 April 2023. Be careful to check whether the contract includes any conditions which must be fulfilled for the sale to be effective since in such cases, the date contracts are exchanged will not be the sale date. Instead, the sale date will be deemed to be the date the conditions are fulfilled. Should you be selling a house, beware of the 60-day deadline within which you must report the sale to HMRC. Contact Cheylesmore Accountants today if you’ve recently sold, or are looking to sell, a second-home.
Inheritance Tax
Whilst the first £325,000 of your estate isn’t factored in for inheritance tax purposes upon your death, you can provide £3000 in gifts from your estate each year tax-free. Should you be unable to use this amount this year, you can also carry it forward by a year thereby enabling you to grant £6000 next year.
Pension Annual Allowance
Most employees have limited means of reducing their tax liability given that they’re subject to PAYE and Class 1 National Insurance on their earnings. However, a pension remains one of the most beneficial ways for them to contribute to their future financial stability whilst also being aided by contributions made their employer. For the 2022/23 tax year, you can invest 100% of your earnings up to a maximum of £40,000 in your pension pot to avail tax relief. This figure includes any contributions made by your employer. However, pension can be an area of complexity especially with the goalposts about the rules encompassing changing quite frequently. Hence, it would be best to seek advice from an expert.
To explore the options available to you to exploit your annual allowances or other tax-related matters, contact Cheylesmore Accountants today to enable us to optimize your financial affairs. We will take the time to have a comprehensive look at your different earnings streams and current tax position to best advise you on the actions you can take based on elements which are in your control.
