Tax planning opportunities for individuals
Are you and your family taking advantage of tax planning opportunities?
It is not as difficult as you may at first think. There are simple things you can do initially and then your plans and strategies can evolve.
With the end of the 2023/24 tax year fast approaching, now is a good time to stop and work out what actions are required to make use of the relevant tax planning opportunities that are of interest to you and your wider family.
Nicky discusses ways to take advantage of tax planning opportunities in advance of 5 April.
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Webinar: Planning opportunities in a general election year Our webinar will highlight the importance of getting your tax and financial affairs in order. Our speakers will discuss the tax efficient actions you should be taking including using your savings and ISA allowances, making the most of your annual pension allowance, sharing income amongst the family, considering family investment companies and the use of Trusts. Available on demand webinar |
Gift Aid payments – ticking a box and making a difference
The key point here is that the charity receives your payment and they are able to claim back basic rate relief on the payment from HMRC. When making Gift Aid payments, ticking the box informs the charity that you are UK resident and have sufficient taxable income to cover the payment.
Gift Aid payments are relevant for sponsoring, donating and some entrance and membership subscriptions.
Who should make Gift Aid payments?
Ideally, the person in the family with the highest marginal tax rate should be making the Gift Aid payment and recording the payment on their UK tax return. Those paying higher rate of tax will generate additional tax relief via a reduction to their tax liability.
See our insight Making Gift Aid donations | Crowe UK for more information.
Making the most of Individual Savings Accounts (ISAs)
ISAs are not just for you but for other members of your family. They can be used by parents or grandparents to transfer funds to future generations and assist children to save for their future.
The income and capital gains generated is tax-free and not taxed when withdrawn.
The government will add a 25% bonus on some ISAs.
The facts:
ISA
- An annual allowance of £20,000 can be invested by UK residents over 18 (16 or over for a Cash ISA).
Junior ISA
- An annual allowance of £9,000 can be invested per child.
Lifetime ISA (LISA)
- Up to £4,000 of the ISA limit (above) can be contributed.
- This is only available for those aged between 18 and 40 at the time of opening the account.
- Contributions can be made up until the age of 50.
- A bonus of 25% of that year’s contributions is added on each contribution.
- The bonus is only retained if the LISA is used to:
- purchase a first home for less than £450,000, or
- withdrawn after the age of 60.
Utilising allowances and reliefs
Being aware of the allowances and reliefs available and making the relevant changes to take advantage of them will benefit you and your wider family.
Savings and dividend allowances
These provide an opportunity for families to structure their savings and dividend income to benefit from these allowances.
| Taxpayer | Savings allowance | Dividend Allowance | |
| Allowance | Tax Saving | ||
| Basic rate | £1,000 | £200 | £1,000 |
| Higher rate | £500 | £200 | £1,000 |
| Additional rate | £0 | £0 | £1,000 |
Trading and property allowances
These allowances are designed to exempt modest amounts of income for example from sales on eBay and Amazon and rentals from Airbnb.
Each allowance is £1,000 tax-free.
In addition, rent-a-room relief can be claimed if part of your home is let out. Up to £7,500 can be received tax free.
Marriage allowance
Up to £1,260, 10% of the personal allowance, can be transferred to the spouse/civil partner where one party to the marriage/civil partnership is a basic rate taxpayer, and the other has income below the personal allowance. The reduction in the tax liability for the basic rate taxpayer is up to £252 in the current year.
Reliefs available for employees
As an employee there are a few reliefs that can be claimed in respect of your employment. These include:
- professional subscriptions
- working from home allowance
- business miles travelled in your own vehicle.
Actively utilising the Capital Gains Tax annual exemption
You can crystallise capital gains and make use of the annual Capital Gains Tax exemption of £6,000* before 6 April 2024.
One way of crystallising capital gains is to sell and then buyback stocks and shares.
This also provides an opportunity to increase the base cost for future sales. However, the repurchase will need to be delayed for more than 30 days or made by your spouse, civil partner, or ISA to benefit from this.
*Not available to those taxed on the remittance basis with income and capital gains above £2,000
Easy Inheritance tax (IHT) reliefs
You and your family can take advantage of a number of IHT free reliefs.
- An annual gift of £3,000. This provides parents (and grandparents) with an opportunity to make tax-efficient gifts.
- Small gifts of £250 per person as many as you care to make per tax year. This provides the opportunity of gifting £250 to each child or grandchild each and every tax year.
- Regular gifts from disposable income. This is a complex area and people can and do get it wrong, so it is worth seeking advice. When thought through and implemented correctly it is a valuable relief.
Great care needs to be taken to ensure that the gifts are habitual in nature and are out of income which is in excess of regular expenditure.
These gifts could include making the following for children/grandchildren:
- pension contributions
- ISA subscriptions
- university fees
- accommodation costs
- family holidays.
Saving for retirement, making the most of pension contributions
Are you and your family benefiting from making pension contributions? Pension contributions can be made for your minor and adult children and for grandchildren.
The benefits of making contributions are:
- The pension scheme is able to claim back basic rate tax from HMRC.
- If you are paying tax at a higher rate than 20%, then you will receive additional tax relief.
- You are building a pension pot to use in your retirement or pass to future generations.
How much can you contribute?
- For this current tax year, 2023-24 the rates have increased.
- The annual pension contribution capacity in 2023-24 is the lower of your relevant earnings and the annual allowance of £60,000 gross, equating to a £48,000 net payment.
- All UK residents under 75 are able to contribute up to £3,600 gross, £2,880 net per year regardless of income.
- If your adjusted income (generally, your total taxable income plus employer pension contributions) is over £260,000, then the annual allowance is tapered away by £1 for every £2 of income. There is a minimum level of £10,000 gross, £8,000 net for those with adjusted income in excess of £360,000.
- If you are aged over 75 then no tax relief is available on the contributions made.
Do you have scope to make additional contributions that can utilise unused capacity brought forward from the three previous years?
Reviewing your pension position and that of your family is important.
For more information please see our recent articles, Pension contributions: act now to maximise tax efficiency and Pension contribution opportunities for Partners.
Tax efficient investments
There are three key generic tax efficient investments that individuals are able to invest in where income tax relief is available which will reduce your tax liability.
Venture Capital Trusts (VCTs)
- Investments up to an annual maximum of £200,000 qualify for income tax relief at 30%.
- Dividends received are tax-free.
- There is no Capital Gains Tax (CGT) payable on any gain made when sold.
Enterprise Investment Scheme (EIS)
- Investments in qualifying companies up to an annual maximum of £1 million attract income tax relief at 30%.
- This limit is increased to £2 million where investments over £1 million are invested in knowledge-intensive companies.
- If the investment is held for more than three years then any capital gain generated is exempt.
- Relief from CGT is available where an amount up to the level of the capital gain is reinvested in a company qualifying for EIS.
- The original capital gain is deferred until the EIS shares are sold, at which point the capital gain comes back into charge and is taxed at the prevailing rate.
Seed Enterprise Investment Scheme (SEIS)
- An individual can invest up to £100,000 per tax year in start-up companies that qualify for the SEIS.
- Income tax relief is at 50% of the investment.
- If the investment is held for more than three years then any capital gain generated is exempt.
- Reduce capital gains in the year by up to 50% of the SEIS investment.
- If you have capacity in the 2022-23 tax year the investments in both EIS and SEIS can be carried back and income tax relief obtained in the earlier year.
What is your strategy?
It is important to consider your short, medium and long-term strategies and to consider some of the following:
Do you have sufficient life assurance cover?
- Do you have critical illness cover?
- Do you have income protection?
- What is your IHT exposure? Try our IHT Calculator to estimate your IHT liability.
- Is your estate efficient for IHT purposes?
- Have other members of your wider family thought about their IHT exposure?
- Is your Will up to date? We can help you to ensure your Will is IHT efficient.
- Do you have a lasting power of attorney (LPA) in place?
- Do you have an ‘in case of death’ folder/death box with details of where your financial information is held?
- How will your family deal with your internet and social media accounts in the event of illness or death?
Taking advantage of year-end tax planning should only be part of your overall tax planning strategy. Tax planning is all about putting into place a strategy which provides the right structure and security for your financial affairs. Your strategy should evolve and develop with time to enable you to plan for the future.
Finally, with the new tax year approaching, there is still time to take action and put in place tax planning opportunities to help you and your family; partner, children, parents and those closest to you.
For more information on how you can make the most of your tax planning opportunities, get in touch with Nicky Owen or your usual Crowe contact.
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