10 year-end tax planning tips for individuals
Tax thresholds and the personal allowance in England and Northern Ireland are frozen until 2026. In Scotland, the new tax year sees the introduction of a new tax band. Tax planning opportunities are there for you to consider.
If you are planning to sell an asset or make gifts to relatives, it is important to plan and seek advice. The timing may affect your tax liability and being aware of your choices could help you save income tax.
We recommend speaking to your accountant to discuss your personal circumstances and maximise your tax savings. Speak to our experienced team at TaxAssist Accountants for advice and guidance.
1. Dividends
Use your dividend allowance, this is tax-free income. The dividend allowance for 2023/24 is £1,000 and in 2024/25 it reduces to £500. By using your dividend allowance, you are increasing your tax-free income.
In the UK, individuals pay tax on dividends above the dividend allowance. The tax rates are:
- 8.75% for basic rate taxpayers
- 33.75% for higher rate
- 39.35% for additional rate
The dividend tax rate is lower than income tax rates. This is one of the reasons dividends are tax-efficient income.
2. Capital Gains Tax (CGT)
Use your CGT tax-free allowance against your taxable gains. In 2023/24 the CGT annual exemption is £6,000 and in 2024/25 this reduces to £3,000.
With the CGT annual exemption halving next year, you may want to consider selling the asset sooner. Bear in mind that you are not able to carry forward any unused exemption.
If you are thinking of selling an asset, there are various CGT reliefs and exemptions. CGT can get complicated, so we recommend speaking to an accountant.
3. Inheritance Tax (IHT)
To reduce your exposure to IHT, make gifts during your lifetime (annual gifts, small gifts, regular gifts).
IHT may be payable on gifts made within seven years before death. Tax-free gifting options are available and you must seek professional advice for IHT.
- Gifts between spouses/civil partners are exempt from IHT. They must live in the UK permanently and be legally married or in a civil partnership.
- Gifts to charities and political parties are also exempt.
- You can also annually give away £3,000 worth of gifts each year as part of your annual exemption. These annual gifts can be to one person or several people.
- You can gift up to £250 per person each tax year provided you have not used another allowance on the same person.
- Gifts for birthdays, Christmas and weddings are not subject to IHT. Limits apply to marriage gifts based on your relationship with the recipient.
- You can make regular payments from regular income, known as 'normal expenditure out of income'. This may be paying rent for a child or giving financial support regularly.
4. Personal savings allowance
Use your personal savings allowance to maximise your tax-free savings income. The personal savings allowance is £1,000 if you are a basic rate taxpayer or £500 as a higher rate taxpayer. Additional rate payers do not get a personal savings allowance.
If your income is below £17,570, you may be eligible for the starting rate of savings. You may be able to earn up to £5,000 of interest tax-free.
5. Savings and ISAs
Maximise your ISA (Individual Savings Account) and use your annual ISA allowance. The ISA allowance for 2023/24 is £20,000 across all types of ISA. This includes Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs.
Individuals do not pay tax on interest received on an ISA, or income and capital gains from an ISA.
A lifetime ISA is type of ISA for 18–39-year-olds looking to purchase their first home or save for later life. The limit for the Lifetime ISA is £4,000 per annum, which counts towards your annual ISA limit of £20,000.
6. Pension savings
Most UK taxpayers get tax relief on personal pension contributions, based on the rate of tax they pay.
A basic rate taxpayer (and starter rate in Scotland) will get 20% relief on pension contributions. A taxpayer who pays £80 into their pension will get £20 paid in by the Government.
Higher and additional rate taxpayers, and top rate taxpayers in Scotland, may get higher relief.
You may need to watch out for the annual allowance. This is the amount you can save in a pension, or the amount your pension can grow each year before a tax charge arises. The amount of the annual allowance depends on your circumstances.
7. JISA
A Junior ISA or JISA is a tax-free savings account for children. You can use a JISA to save for children and grandchildren. The limit for saving in a JISA is £9,000 per annum. Saving in a Junior ISA for a child or grandchild does not use your ISA allowance.
8. Charitable donations
Making charitable donations through gift aid gives higher and additional rate taxpayers tax relief at the basic rate. The charities can also claim an extra 25% on your donation, at no cost to you.
You can elect to include a gift aid payment made at the current date on your prior year tax return. For example, you can include a donation made on 1st October 2023 on your 2022/23 tax return. This means you get tax relief sooner.
9. Marriage allowance
Marriage allowance lets an individual transfer some of their personal allowance to their husband, wife or civil partner. This can result in income tax savings.
If one person does not use all their personal allowance, the other person can use some of it to reduce their tax. Both individuals must be basic rate taxpayers.
10. High income child benefit charge
An individual receiving child benefit with income over £50,000 may be subject to the high income child benefit charge. This means they will need to pay some or all the child benefit back to HMRC. Where it is possible to move income between spouses, it may be worthwhile and remove the tax charge.
How can TaxAssist Accountants help?
Our proactive and qualified team at TaxAssist Accountants can help you to plan for tax effectively. To discuss your options further, speak to our expert team today on 01494 718 777 or use our online contact form.
Last updated: 20th March 2024