With the final day of the tax year (5 April 2023) just a few weeks away, it is that time of year again where you might want to consider taking action with regards to your tax affairs. Careful trust and tax planning can bring you tax savings, whether now or in the future. What options are on the table for you will depend on your own personal circumstances, and as such you might want to seek professional advice first. This is particularly the case with regards to pensions and investments, where a financial advisor can often be of great assistance. Below we set out some generic options.
Capital gains tax (CGT) annual exemption
Every individual has a tax-free CGT exemption of £12,300 for the current 2022-23 tax year. However, any unused amount is lost. Therefore, if you hold assets such as shares which are sitting at an unrealised gain, you could consider selling some of those shares in order to realise gain within your available exemption.
This is particularly relevant for this tax year-end, because the annual exemption is being dramatically cut as from 2023-24.
Inheritance tax (IHT) annual exemption
Every individual has a tax-free IHT exemption of £3,000 for the current 2022-23 tax year. Any unused amount can be carried forward to the following tax year, but no further than that. Therefore, if you have any exemption which remains unused from 2021-22, this will be your last chance to utilise it. Please note that current year (2022-23) exemption must be used before prior year (2021-22) exemption can be.
IHT small gifts exemption
Where an individual makes gifts of up to £250, in total, to the same person in the same tax year, all of those gifts are exempt from IHT. This is a separate exemption to the above annul exemption. If more than £250 is gifted to an individual in total, none of those gifts will be exempted. Gifts like birthday and Christmas presents will commonly fall within this exemption. If you have made gifts to someone which total less than £250 so far in 2022-23, you could consider topping this up by making one extra gift to them.
Individual Savings Account (ISA) allowance
Every adult can invest up to £20,000 into their ISAs during 2022-23 (the limit for junior ISAs is £9,000). However, any unused amount is lost. Therefore, if you have not yet used your allowance, you could consider making such an investment. ISAs are very tax efficient, because any income or growth which is generated within an ISA is exempt from income tax or CGT.
Pension annual allowance
Depending on circumstances, individuals can have up to £40,000 of pension allowance each year. This is the maximum amount which can be invested into a person’s pension without being levied with a penalty. Any unused allowance can be carried forward for up to three tax year. Therefore, if you have any exemption which remains from 2019-20, this will be your last chance to utilise it. Please note that current year (2022-23) allowance must be used before prior year (2019-20) allowance can be.
Generate capital losses
If you have already fully utilised your CGT annual exemption for 2022-23, but are still left with some gains being taxable, you might want to look at whether you have any assets such as shares which are sitting at an unrealised loss. If you do, then you could consider realising such losses in order to offset them against your gains. You generally wouldn’t want to realise losses which exceed the difference between your gains and your annual exemption.
Higher rate or additional rate income tax relief
If you are a higher rate or additional tax taxpayer, making pension contributions or gift aid donations before the tax year end is likely to reduce the amount of income tax you will need to pay for 2022-23. With pension contributions, this is subject to your annual allowance as per above.
If you are married (or in a civil partnership), your spouse will also have the above CGT, IHT and ISA allowances. If there is any particular allowance which your spouse is currently unable to utilise, you could consider whether transferring some of your assets to them (eg cash or shares) could enable that to be rectified.
For example, if you have used your CGT allowance but your spouse has not, you could transfer some of your shares to them, for them to duly sell. The initial spousal transfer itself would not be liable to CGT or IHT.
Make tax efficient investments
You can likely reduce the amount of income tax you will need to pay by investing in shares through Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS) and/or Venture Capital Trusts (VCTs). CGT and/or IHT relief potentially can be available too, dependent on the scheme and on your personal situation.
If you own and run your own company, there are various aspects to consider with regards to your own remuneration. For example, have you yet paid yourself a dividend so as to at least utilise your tax-free dividend allowance?
How Moore Barlow can help
Issues concerning your wealth, finance and assets can be particularly hard to navigate, which is why our expert team of lawyers can help make finding a resolution simple and easy, reducing any possible confrontation. If you would like Moore Barlow to assist you with any personal tax planning, please do not hesitate to get in touch with the private wealth team.
Disclaimer: The above should not be used in place of taking professional advice. It is merely just a flavour of each option which we have provided here, rather than the in-depth detail. As mentioned, not every option will be suitable to your own circumstances. Moore Barlow is unable to provide pension or investment advice.