Tax services: helping you plan everything for the new tax year
The new tax year starts on 6 April 2023, which means that now is the perfect time to get your finances in order. Several important, tax-efficient allowances reset and rollover between financial years, so it’s important to make sure you’ve done all you can to help grow your savings.
As a leading Chartered Accountants in Birmingham, our expert tax advisors are on hand to help you and your business navigate this crucial period. Read on to find out exactly what you should consider before the deadline and how our personal tax service and tax consultancy can help you!
There are changes to the Capital Gains Tax allowance
For the 2023/24 tax year, the Annual Exempt Amount (AEA) for Capital Gains Tax (CGT) will be £6,000 for individuals and personal representatives, and £3,000 for most trustees.
This is crucial for business owners and sole traders as you may be charged CGT on the profits of your sales, and the allowance has been reduced from the £12,300 threshold in place for the 2022/23 financial year.
CGT applies to the profits on the sale of assets in your possession, including personal possessions worth more than £6,000 (that are not your car), your main home if you let it out or use it for business, any shares not in an ISA or PEP, and business assets.
Your CGT allowance, the amount of profit you can make before being charged CGT, cannot be carried forward to the new financial year, so it is crucial that you maximise your available allowance before you lose it.
You have a £20,000 ISA allowance
ISAs are one of the most common tax-efficient vessels for saving money. This is because any interest or returns gained on money stored within an ISA are free from Income Tax.
Every year, you can put up to a total of £20,000 into your ISAs. There are several types of ISA, but the most common are Cash ISAs, where the money is saved and you earn interest, and Stocks and Shares ISAs, where the money is invested, and you receive the returns.
You may also have a Lifetime ISA if you are under the age of 40, though these have a separate limit of £4,000 per year. If you choose to pay £4,000 a year into your Lifetime ISA, for example, then you will have £16,000 left to pay into your other ISAs.
The ISA allowance cannot be carried over between tax years.
Utilise your Gifting Allowance to reduce potential IHT charges
It’s always worth preparing for the unexpected. If your estate is worth more than £325,000 (or £500,000 if you leave your home to a child), known as the Nil-Rate Band, your beneficiaries may be faced with Inheritance Tax (IHT) payments should you pass away.
In this instance, the Gifting Allowance is designed to reduce amount your beneficiaries may be liable to pay. While the first £500,000 of your estate is free from IHT, there will be a 40% charge on anything over that value left to your loved ones.
However, by utilising your annual gifting allowance, you can reduce the overall value of your estate, and the percentage of IHT that your beneficiaries are liable to pay. Annually, you can give away £3,000 worth of gifts that will be exempt from IHT.
Annual gifts past the £3,000 limit will be subject to a reduced rate of IHT if they were given less than seven years before your death. The amount they pay will taper off depending on how long ago the gift was given.
It is worth noting that your Gifting Allowance can be carried forward for one tax year, meaning that if you haven’t gifted anything in the 2022/23 tax year, you will have an allowance of £6,000 next year.
You have a £40,000 annual allowance on your pension
You can pay a maximum of £40,000 or 100% of your annual earnings, whichever is lower, into your pension tax-free each year. If you wish to contribute more than that amount, you will no longer receive the government tax relief according to your income band.
If you do not use your full pension annual allowance, it can be carried forward by up to three tax years. This means that you may be able to benefit from government tax relief even if you pay more than the annual allowance in a single year, provided you are able to carry it forward.
Your annual dividend allowance is being reduced
The amount of income you can earn through dividends before being charged Income Tax is being reduced from £2,000 in the 2022/23 tax year, to £1,000 in the 2023/24 tax year.
This allowance will be further reduced to £500 in the 2024/25 tax year.
There’s a lot to think about in the run up to April
These are just a handful of the preparations you may want to make in the run up to the new tax year. Individuals with shares in businesses may want to investigate Dividend Tax, and business owners might have to consider Corporation Tax and Business Asset Disposal Relief.
But don’t panic – as one of the leading accounting companies in the Birmingham area, our expert tax services can help you save you time, stress, and most importantly, money.
Interested in discussing your options with one of our expert team? Get in touch today, we are always happy to help!
