15 Feb 2023
The Tax Year End Approaches
Jeremy Hunt's Autumn statement last November was more than just a reversal of the tax-cutting plans of his briefly empowered predecessor. In the view of two well-respected think tanks, it marked the country entering a 'new era of high taxation'. That viewpoint is hard to dispute, given the increases to dividend tax, capital gains tax and corporation tax alongside a multitude of tax allowances frozen until April 2028.
The contents of the Autumn Statement make tax year end planning especially important in 2023, with new deadlines being created. Among the areas to consider are the following:
- Capital gains tax - The current individual exempt amount of £12,300 of gains will drop to £6,000 on 6th April 2023 and then reduce to £3,000 a year later. Consideration should be given to realising investment gains up to the annual exempt amount before the axe falls. If the investment holding is one you wish to retain, you may need to reinvest via an individual savings account (ISA) or a pension. Anti-avoidance rules make direct reinvestment within 30 days ineffective for tax purposes.
- ISAs - The main limit on ISA annual contributions has been frozen since April 2017 at £20,000. With tax allowances for capital gains and dividends being slashed over the next two tax years, the aim should be to maximise ISA inputs. If any cash is being held in ISAs, it's time to review both the interest rate being paid (it probably has not kept pace with the base rate) and whether switching to a stocks and shares ISA would now be beneficial.
- Pension contributions - Pension contributions should usually be made before the end of the tax year. This advice still stands if you want to carry forward up to £40,000 of unused annual allowance from 2019/20, as 5th April is the last day to do so. Otherwise (for high earners south of the border), the reduction in the additional rate threshold in 2023/24 means you may receive more tax relief by delaying an increased contribution to the new tax year.
- Income timing - The higher rate tax threshold (£50,270 outside Scotland, £43,663 inside Scotland) remains frozen in 2023/24, and the additional rate threshold will be cut from £150,000 to £125,140. Tax rates have also increased north of the border. Accelerating the receipt of income to the current tax year could save you tax, although it might also mean you pay (less) tax sooner. If you are a shareholding director, you may want to bring forward a dividend payment before 6th April 2023. Similarly, you could bring forward interest payments by closing a deposit account - but beware of any early closure penalties.
- Inheritance tax - The Autumn Statement froze the inheritance tax (IHT) nil rate band (NRB) and residence nil rate band for another two years, to April 2028. Had the NRB been inflation-proofed since it was fixed in April 2009, it would be over £140,000 higher next April. IHT year end planning takes advantage of the various annual exemptions, which, with one limited exception, cannot be carried forward. In 2022/23, lifetime gifts of existing investments are also worth considering, taking advantage of the current CGT annual exempt amount and lower market values.
As ever, the earlier we discuss year end planning options, the better. This is especially the case if there is an intention to carry forward unused pension allowance, which may require third party information.
Other information
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