Year-End Tax Planning

As interest rates have only recently increased, many taxpayers overlook the tax they will suffer on interest that they receive. Basic rate taxpayers can earn up to £1,000 in savings interest tax-free, while higher rate taxpayers can earn up to £500 tax-free. Additional rate taxpayers lose this allowance entirely. Taxpayers should discuss with their accountants/financial advisors strategies to mitigate the tax on investments:

• One of the most valuable allowance at the moment is the £20,000 ISA allowance. All income and gains generated in an ISA are tax free. Depending on your circumstances there are different types of ISA and a good financial advisor will be able to point you to the right direction.
• Savings should be spread across different regulated financial institutions to take advantage of the FSCS £85,000 deposit guarantee.
• Current interest rates from savings accounts as many accounts have a good introductory rate then drop to a poor rate after a set period of time.
• Strategies to optimize your savings to stay within the PSA limits, including ways of utilising spouse’s or partners unused allowances

Pension contributions offer significant tax advantages that can substantially reduce your tax bill. Tax payers should consider the below and always check with an accountant/financial advisor before making a significant contribution:

• The Annual Pension Allowance is currently set at £60,000 for most taxpayers. This level is capped to the lower of your net relevant earnings (income) or the allowance.
• Carry forward is available for unused allowances from the previous three tax years.
• Potential for salary sacrifice arrangements with your employer to increase pension contributions
• If you have up to date records, your accountant can work out the optimal level of tax relief based on your income tax bracket
• Impact of pension contributions on your overall tax liability

For high earners, be particularly aware of:

• Tapered Annual Allowance for those with adjusted income over £260,000
• Potential lifetime allowance implications
• Optimal timing of additional contributions

Maximise your tax-efficient investment strategies by discussing:

• Utilising your annual Capital Gains Tax (CGT) allowance (currently £3,000)
• Strategic timing of asset sales to spread gains across tax years
• Opportunities for tax-efficient investments, including:
  • Stocks and Shares ISAs
  • Enterprise Investment Schemes (EIS)
  • Venture Capital Trusts (VCTs)

With the Dividend Allowance reduced to £500, this is far less useful than the historic high of £5,000:

• Review your current dividend income, look at using ISA’s to hold any qualifying shares
• Explore tax-efficient ways to extract money from limited companies
• Consider the most tax-efficient method of taking income
• Potential splitting of dividend income between spouses or partners

Review all sources of income and potential tax implications:

• Rental income and property-related tax considerations
• Self-employment income and expenses
• Additional income streams
• Potential use of salary sacrifice or other tax-efficient compensation strategies

While more comprehensive planning requires deeper discussion, key considerations include:

• Annual gift allowances (£3,000 per year)
• Gifting from surplus income
• Potential use of trusts
• Understanding inheritance tax thresholds and exemptions

1. Gather all relevant financial documents before meeting your accountant
2. Be prepared to discuss your full financial picture
3. Ask about any recent tax law changes that might impact your situation
4. Consider a forward-looking tax strategy, not just year-end mitigation

Tax laws are complex and change frequently. This article provides general guidance and should not be considered definitive financial advice. Always consult with a qualified accountant or financial advisor who can provide personalised recommendations based on your specific circumstances.

The end of the tax year presents a critical opportunity to optimize your financial position. By having a comprehensive discussion with your accountant, you can potentially save significant amounts in tax and set yourself up for greater financial efficiency in the coming year.

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