Tax year ending!

There are not many weeks left of the 22/23 tax year, which ends on Wednesday 5^th April. As a brief reminder of the key issues, I have done a quick summary … if you are not sure of what you have used or what you can use, please get in touch with us as soon as you can.

PENSIONS

• Everyone under the age of 75 can contribute £2,880 into a pension and get basic rate tax relief, irrespective of any income. This is as close as it gets to ‘money for nothing’
• The annual allowance of £40,000 applies to those with incomes of £3,600 – £240,000. You and an employer may contribute up to 100% of your earned income (capped at £40,000) between you
• Those earning over £240,000 need to be careful; your allowance reduces by £1 for every £2 of income over £240,000 until it reaches £4,000 – which includes any employer payments

ISAs – INDIVIDUAL SAVINGS ACCOUNTS

• Any adult can invest up to £20,000 over the course of the tax year into an ISA which grows free of income tax and capital gains tax
• Those aged 18-40 can use a Lifetime ISA allowance of £4,000 if this is for a deposit on a first ever home. The Government will add £1,000

CAPITAL GAINS

• If you are selling an asset / investment (which would include rebalancing them) this triggers capital gains. The 22/23 allowance is £12,300 of gains before you pay any tax, but this is falling in 23/24 to just £6,000 and then £3,000 the following tax year. So if you are going to do this anyway, I would encourage you to get on with it – perhaps you have some shares that you don’t really want …
• Trusts also pay capital gains, but only have half of the personal allowance, so even more incentive to take profits and rebalance
• You can delay payment of capital gains tax using some investments (ask/see below)

INCOME

• If your income exceeds £100,000, you begin to have your personal allowance of £12,570 reduced by 50p for every £1 above £100,000. The personal allowance is the amount of income taxed at 0%. So it would be prudent to have bonuses paid into pensions for example
• Dividends – the first £2,000 of dividends is tax-free in 22/23
• Interest for non or basic rate taxpayers is 0% on the first £1,000 of interest (savings allowance) and £500 for higher rate taxpayers. Additional rate (45%) taxpayers don’t get the allowance. As some deposit accounts now pay 3% or 4%, you may be drawn into this (a higher rate taxpayer only needs £16,666 in savings earning 3% interest of £499. You need to declare all income to HMRC through self assessment
• If you really must insist on a cash ISA (please only for ‘short-term parking’ of money) then this would ensure the interest is tax-free, but rates on cash ISAs are much lower than savings accounts now
• If you are not using your full personal allowance and have investments that provide taxable income, this may be a sensible moment to trigger income that uses your allowance
• If you rent a room in your home, there is a tax-free rent-a-room allowance of £7,500

ANNUAL GIVING

• You can gift £3,000 to any individual without recourse to tax by the recipient or your estate. If you do any substantial giving please put a scan of a signed note of this on our portal
• If you are feeling generous, you are also permitted to gift your newlywed children £5,000 or grandchildren £2,500

SPOUSE ALLOWANCES

• If you have a spouse who does not earn up to the personal allowance of £12,570, you can elect to have 10% of this (£1,257) added to your own allowance
• Spouses also can benefit from sharing assets and effectively doubling exemptions and allowances

ALTERNATIVES & HIGH-RISK INVESTING

It is generally thought that VCTs, EIS and SEIS are really for more sophisticated investors, about 3% of the population. All are long term in nature – meaning 6-10 years. Unlike your portfolio elsewhere (which – if we are managing it – will be an enormous portfolio of global equities), these are very small by comparison. Do not do these on your own unless you know your Sharpe ratio from your Beta. Unlike the above, the investments below can experience permanent loss:

Venture Capital Trusts

• Tax-free income from your investment
• Tax-free capital gains
• Tax relief of 30% on your initial investment (tax reducer)

Enterprise Investment Schemes

• 30% tax relief on your investment
• The ability to defer owed capital gains tax
• Loss relief
• Exempt from inheritance tax

Seed Enterprise Investment Schemes

• 50% tax relief on your investment
• Reduce your due capital gains tax bill by 50% immediately
• Exempt from inheritance tax

DON’T FORGET

Income taxes are tiered. Each slice of your income is taxed at a different rate.

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £150,000	40%
Additional rate	over £150,000	45%

Please remember that HMRC will apply penalties for late payment and fines for non-payment which can result in the very worst of punitive measures – a custodial sentence.

As ever, be sure of two things – death and taxes. Neither are terribly welcome.