In 2022 rising inflation led the government to increase national insurance by 1.25% and raise the threshold to match the income tax threshold at £12,570. So, planning for the new tax year and mitigating the impact of last year’s Budget changes is essential. We have prepared a handy checklist to help you plan ahead.
PAYE tax code
Let’s start with the tax code. Whether you are employed or self-employed, you need to make sure you are on the correct tax code, or you could be paying too much tax. Ask your accountant to check or contact HMRC if you’re in doubt. The big tax freeze continues with income tax remaining at the same thresholds as last year – see our previous blog, The big tax freeze.
If you are a basic rate taxpayer and you’re married or in a civil partnership, you can transfer 10% of your personal allowance to your spouse or partner. When combined between a couple, this unused allowance offers an overall tax saving. However, there is a limit to how much you can transfer, which is currently £1,260.
Capital gains tax (CGT)
Capital gains tax will increase from this April, so make sure you use all your allowance before the end of this tax year. You cannot carry over any unused allowance. The tax-free allowance is currently £12,300, but from April 2023, it will be halved to £6,000, and it reduces further to £3,000 in April 2024.
If you are considering selling a property or another large asset with a chargeable gain, you will pay less tax if you sell before April. CGT exemptions include transferring assets to your spouse or partner or gifting to a charity. Speak to our team for advice.
Similar to the above, the annual dividend allowance is also being reduced from £2,000 to £1,000 from April 2023. This will be reduced further to £500 in April 2024. There are no changes to the dividend tax rates at the time of writing. It’s recommended to use the dividend allowance before it’s reduced.
Making use of your pension allowance will help you build up tax-free savings. The current threshold is £40,000 for most people, and you can usually carry forward up to three years of unused allowance. However, the tapered annual allowance might apply if you are a high earner. We can help you calculate this through our pension review.
Inheritance tax (IHT)
The freeze on inheritance tax continues and is expected to stay until 2026. The current threshold is £325,000, which means your heirs will pay 40% tax on anything above unless you leave everything to your spouse or partner.
The threshold rises to £500,000 if you leave your home to a child (including adopted or fostered children) or a grandchild. So it’s worth checking your estate value in the months ahead, especially if you haven’t had a review for a while.
Individual Savings Accounts (ISA)
You have until 5th April 2023 to add to your ISA account, and the allowance is £20,000. This means you can transfer up to that amount before the end of this tax year. ISAs are exempt from income and capital gains tax, which means they are a tax-efficient way to save. You can hold a cash ISA and a stocks & shares ISA, but not two of the same type. The ISA allowance is the total for all ISAs combined.
Junior ISA (JISA)
If you have children and haven’t set up a Junior ISA (JISA), then it’s worth considering due to the tax benefits. Opening an account and saving each year will provide you with a valuable lump sum for when your child turns 18. They can then use this to buy a car, support themselves through university or put towards their first house deposit. The JISA allowance is less than an adult’s at £9,000 per year.
One way to make sure you are prepared for the tax year ahead is by having a full review and getting a financial plan in place. Our professional team will help you make the most of your money. In addition, we will look at tax-efficient ways to help you protect and save your income.
Would you like a financial review to see how we can help you plan ahead for the new tax year? Get in touch to speak to our financial planners.
(Balance website: https://balancewealth.uk/the-big-tax-freeze/ )