The end of every tax year presents itself with various options to optimise tax efficiencies, but with significant changes to some of the rules in the 2023/24 tax year, this is a more pressing concern than ever.
Capital Gains Tax (CGT) reductions
Capital Gains allowances are where the biggest changes will be felt by investors next year. The Capital Gains allowance is set to more than halve next year, reducing from £12,300 to £6,000. Allowances are then set to halve again the following year to £3,000.
The reductions in these allowances will potentially have a material impact on investors, although with careful planning any impact can be mitigated.
Assets can be transferred between spouses/civil partners without triggering any capital gains, meaning a couple could effectively have a CGT allowance of £24,600 in this tax year. Also, with prudent planning, the disposal of assets can reduce or entirely remove any Capital Gains Tax liability that may exist.
What about Income Tax?
The biggest change to Income Tax is the reduction of the additional-rate tax threshold which is falling from £150,000 to £125,140. This new lower level is also where the personal allowance is eliminated, since it is tapered at a rate of £1 for every £2 of annual income earned above £100,000.
Less obvious, but likely to impact tens of millions of taxpayers including retirees, is the extended freeze of the personal allowance to 2028 and the level at which people start to pay higher-rate tax rather than basic-rate tax.
The personal allowance – the maximum income each of us can receive and not pay tax – will stay at £12,570. The higher-rate tax threshold, meanwhile, will stay at £50,270 per year (£43,662 in Scotland).
Whilst these band freezes do not appear to look like direct tax increases, as workers wages rise, more and more of their income will be taxed at higher rate.
The tax-free allowance for dividends is being halved to £1,000 from 2023/24 and again to £500 in 2024/25.
ISA and pension allowances reset on 6 April. ISA allowances are set to remain at £20,000 and £9,000 for adults and children respectively. These allowances are lost if they are not utilised within the tax year.
The Annual Allowance for pensions is also set to remain at £40,000. However, there is the option to carry forward unused allowances from previous years depending on your previous years’ contributions.
There are some material changes to the personal tax landscape coming into force within the next few months. Planning ahead will give individuals and families the best chance at minimising the tax burden that these changes may cause.
For those that have utilised their ISA and pension allowances, there are other methods to obtain tax relief with vehicles such as Enterprise Investment Schemes and Venture Capital Trusts. Whilst riskier in nature, they do offer advantageous tax breaks which may be worth considering as a means to reduce or mitigate your own tax liability.
For more information on the upcoming tax changes or to find out how Waverton Wealth can help, contact Sean Lowson, Financial Planner, on +44 (0)131 514 2786 or contact us here.