We all know we’re going to be paying more tax from now onwards.
The Personal Allowance and basic rate band threshold have been frozen for the next five years until 5 April 2028. As earnings increase over time, you may find yourself moving into a higher rate tax band – coupled with inflation, it could leave you with less than you’d hoped. Also, moving into higher rate tax bands could reduce your tax-free Personal Savings Allowance, and ability to claim the Marriage Allowance from your spouse and you may find yourself having to pay back your child benefit.
The tax rate on total income over £100k is effectively 60% as a result of the Personal Allowance being abated and those with income exceeding £125,140 will now pay income tax at 45%.
After the bumper rise in the State Pension by 10.1% this month, pensioners also might find themselves with an unexpected tax liability. Savings attracting higher interest rates may result in interest receipts exceeding the annual £1,000 Personal Savings Allowance (£500 for higher rate tax payers). Also, don’t forget that dividends from shares in excess of the reduced tax-free £1,000 dividend allowance (previously £2,000) might also result in a tax liability.
There are many ways you can reduce the increased income tax burden this tax year – and the good news is that there’s time to plan.
- Do you have a tax-effective income strategy for the current tax year?
- Is your spouse/civil partner included in your plan to maximise your combined net-of-tax income?
- Have you maximised your ISA allowance to generate tax-free dividend income and capital gains?
- Consider making additional pension contributions – preferably via a salary sacrifice arrangement – to save National Insurance for both you and your employer and income tax if you are a higher rate tax-payer
- If you pay tax at higher rates, claim tax relief on your charitable donations – every little helps, as they say!
- With the help of your financial adviser, think about investing in Enterprise Investment Schemes, Venture Capital Trusts, and/or investments that potentially attract Inheritance Tax Reliefs – in addition to Income Tax and Capital Gains Tax Reliefs.
- Is how you extract profit from your owner-managed company business still tax effective knowing that Corporation Tax has also increased from 19% to 25% (at least) on profits in excess of £250k?
We’ll all be receiving a flurry of information shortly which will be required to complete your 2023 Tax Return. Please don’t ignore it! Our advice is to prepare your 2023 Tax Return as early as you can – especially if you have losses to claim or your income in 2022-23 is lower than 2021-22.
If you’ve not been sent a 2023 Tax Return to complete, use HMRC’s useful tool here https://www.gov.uk/check-if-you-need-tax-return to find out if you need to file. Also, don’t forget to check your PAYE Coding Notices – are HMRCs estimates of tax underpaid or excessive reliefs realistic?
As ever, we’re here to help. Call us for friendly help and support on 01223 810100.
