08 Mar 2023
Year-end tax planning: a 10-point checklist
As the end of the 2022/23 tax year approaches, it might be worth asking yourself whether you’re using all the available tax allowances and reliefs.
Now is the perfect time to focus on your finances to ensure you’re ready for the April 5 deadline, so here are ten important points to consider:
1. Have you reviewed your pension arrangements recently?
Everyone should review their pension arrangements periodically. Under current UK regulations, you can pay in £40,000 into your pension including tax relief, each tax year. You may also be eligible to carry forward any unused allowance for the last three years, if you have been a member of a relevant pension scheme.
2. Do you have a cash ISA or a stocks and shares ISA?
You can invest up to £20,000 into an ISA each tax year but the allowance covers both types of ISA and you can’t carry any unused allowance forward. So, if you pay £10,000 into your cash ISA, the most you could contribute to a stocks and shares ISA in the same year would also be £10,000. Some providers offer flexible ISAs that allow you to withdraw funds and then replace them in the same tax year without affecting your allowance.
3. If you are between 18 and 40, you could invest in a lifetime ISA
Lifetime ISAs were introduced to help younger people buy property or save for later in life. If you are between 18 and 40, you can contribute up to £4,000 to a lifetime ISA each tax year until you’re 50 (you must make your first payment before you turn 40). The government will add an extra 25% to your savings annually, although any contributions you make will count towards your annual ISA allowance.
4. You can open junior ISAs for children under 18
Junior ISAs are available for anyone under the age of 18. They have an annual allowance of £9,000 but they must be set up by an adult and the money can’t be withdrawn until the child turns 18. They are an excellent way of helping children save towards higher education or pay for a deposit on a house. The money isn’t taxable and it will automatically convert into an adult cash or stocks and shares ISA in the child’s name when they turn 18.
5. Do you run your own company?
People who have their own companies can either pay themselves a PAYE salary or extract money in the form of dividends (or a mix of both). The annual tax-free dividend allowance is currently £2,000. If you take more than this, you will pay tax on the extra income at a rate that depends on your income tax band. If you sell shares in the business, the annual capital gains tax (CGT) allowance is currently £12,300, although this will fall to £6,000 in 2023/24 and just £3,000 in 2024/25.
6. Would you like to invest in a start-up business?
There are many ways for investors to get tax relief when they invest in new businesses, including the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT). If you’re looking to invest in a start-up, a financial planner can help you to explore the options. The Treasury is considering its position on the tax incentives of all three schemes at the moment, so there could soon be changes to the tax relief available or the eligibility criteria.
7. Have you given money to charity this tax year?
You can donate as an individual to a registered charity through Gift Aid or straight from your wages via Payroll Giving. If you have donated via Gift Aid, you will be entitled to receive tax relief. If your employer or pension provider offers the Payroll Giving scheme, any donations you make will be taken before income tax is levied. And if your business donates to a registered charity, these donations will also be entitled to tax relief.
8. Do you own stocks and shares?
The current annual capital gains allowance is £12,300, so you won’t pay tax on any gains made up to this amount when you sell your stocks and shares. If some of the stocks and shares in your portfolio are sitting at losses, however, it might be worth selling them and offsetting the losses against any gains realised in the same tax year. If you still have excess losses, they can be carried forward into the following tax year to offset against future capital gains.
9. Are you thinking about selling your business?
If you are considering selling all or part of your business, it’s worth checking your eligibility for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief). This allows you to pay CGT at 10% instead of 20% on all gains on qualifying assets. Certain conditions have to be met – such as you owning the business for at least two years – but this can help entrepreneurs reduce their tax liability when they sell or close a business.
10. What are your financial plans in the future?
The end of the tax year is a great time to think about your future finances. A qualified adviser can help you make the most of the current year’s tax reliefs and assess how your plans might evolve along with your circumstances and ambitions.
Please get in touch if you’d like to speak to one of our financial planners today.
The information contained in this publication does not constitute a personal recommendation and the investments or investment services referred to may not be suitable for all investors; therefore we strongly recommend you consult your Professional Adviser before taking any action.
The value of your investments can go down as well as up and you may not get back the full amount invested. Your capital is at risk.
Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practice and can be subject to change.