Fiscal announcements, a ‘mini budget’ and the Chancellor’s autumn statement have all helped to create what may feel like an uncertain and confusing time, especially now with the end of the tax year fast approaching – April 5th will be here in a flash!
It’s always a good idea to take a moment to check if your finances are as tax efficient as possible. With tax changes on the horizon, our tax planning guide should help you prepare for how these changes might impact you.
1. Use your ISA allowance
Every adult has an ISA allowance of £20,000 for the 2022/23 tax year. Your children have their own allowance of £9,000 each p.a. too.
Of course, you have another ISA waiting for you in the next tax year, but if you don’t use this one, you WILL lose it!
There are very few things in this world that are tax-free, so making the most of your annual tax-free ISA allowance is an opportunity no one should miss if they can help it.
While you’re at it, why not set up a regular monthly payment into your ISA for the next tax year? If nothing else, it’ll mean one less thing to do this time next year!
All you need to know about ISAs: Are you up to date with ISA’s? >
2. Reduce your inheritance tax bill
Everyone can give away £3,000 a year without any inheritance tax liability. If you didn’t use your £3,000 gift limit last year, you can carry this forward and gift a total of £6,000 inheritance tax-free this tax-year.
And that’s not all you can gift:
- You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
- £5,000 to your children when they marry or enter a civil partnership.
- £2,500 to your grandchildren when they marry or enter a civil partnership.
- £1,000 to anyone else when they marry or enter a civil partnership.
Now is the time to use as many annual exemptions as you can to reduce the value of your overall estate and minimise the amount of inheritance tax your family will have to pay when you die.
3. Use your Capital Gains Tax (CGT) exemption allowance
One of the most significant announcements making the headlines is the change to the Capital Gains Tax annual exempt amount. For the tax year 2023/24 the exemption will be only £6,000 for individuals.
This marks a significant reduction in the exemption from the current amount of £12,300 per person. For the tax year 2024 to 2025 and subsequent tax years, the exemption will be permanently fixed at £3,000 for individuals.
Stocks and Shares ISAs and your main residence are Capital Gain Tax-free, but other valuables over £6,000, stocks and shares outside of ISAs, and other properties are all liable for CGT.
You can’t carry over your capital gains tax allowance into the next year. Once the tax year ends, your CGT allowance for that year is gone forever. It’s an expensive missed opportunity if you don’t use at least some of your CGT allowance each year. If you have a large capital gain, you may wish to consider crystallising this before the end of the 22/23 tax year.
Speak to your accountant or advisor urgently if you think this may apply to you.
4. Use your Annual Investment Allowance if you’re a sole trader
If you’re a doctor or dentist employed in a single role, your tax code should, in theory, be correct, yet, in reality, it isn’t always. If you are self-employed or have more than one job, making sure you are on the correct tax code is much more complicated.
Whatever your employment status is, it’s worth checking your tax code and seeking advice if you want to be sure it’s correct.
5. Check your tax code
If you’re a doctor or dentist employed in a single role, your tax code should, in theory, be correct, yet in reality, it isn’t always.
If you are self-employed or have more than one job, making sure you are on the right tax code is much more complicated.
Whatever your employment status is, it’s worth checking your tax code and seeking advice if you want to be sure it’s correct.
6. Use your personal savings allowance
In addition to your ISA allowances, basic and higher rate taxpayers also have a personal savings allowance. It means you can earn a certain amount of interest on any non-ISA savings you have, without having to pay tax:
- For basic rate taxpayers, your personal savings allowance is £1,000 a year.
- For higher rate taxpayers, your personal savings allowance is £500 a year.
Sadly, additional rate taxpayers do not have a personal savings allowance.
7. Save for your children
The Junior ISA allowance limit of £9,000 provides an opportunity to help your children. Even if you can’t stretch to saving that much for them each year, saving what you can afford allows for compound growth and time to help your children to pay for university fees or even get on the property ladder!
If you or your children are under 40 years old, there is also the LISA to consider. More about this in a recent blog post here.
8. Check if you have any pension allowance issues
If you don’t know what your annual pension allowance or your lifetime pension allowance is, let alone whether or not you’re likely to breach either or both, it’s time to speak to a specialist; such as Legal & Medical so you can get to grips with your pension. Never assume they don’t affect you!
See our recent articles if you are in the dark about these important areas. Particularly this year with the expected added complications such as the McCloud remedy and issues with the NHSPS reporting annual allowance growth.
9. Use your dividend allowance
Currently, a tax-free dividend allowance of £2,000 applies to individuals. The government will reduce the dividend allowance from £2,000 to £1,000 from April 2023, and to £500 from April 2024. Any dividends you earn above this limit will be taxed at 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).
You should also note that:
- Dividends received by pensions and ISAs are not included.
- Dividend income is treated as the top band of income.
- If you receive dividends of more than the limit and you are a basic rate taxpayer, you need to complete a self-assessment tax return.
10. Change to Corporation tax
Doctors and dentists with Limited Companies will potentially suffer an increase in the Corporation Tax main rate to 25% from 01 April 2023. This will affect companies with profits over £250,000. A small profits rate (SPR) of 19% will also be introduced to companies with profits of up to £50,000. So, the good news is these companies will not see a rate increase. If your company’s profits are between £50,000 and £250,000, a marginal rate of Corporation Tax that gradually increases from 19% to 25% will come into play.
It may be wise to speak to your accountant to see if there is any benefit in delaying planned expenditure or indeed, any other alterations necessary in light of the rate change.
So, there you have it – there’s lots to consider!
To book in a no obligation appointment with a Legal and Medical Independent Financial adviser simply email us enquiry@legalandmedical.co.uk or call the office 02031671607
The contents of this article may not apply to all readers. We recommend you seek guidance from a financial adviser prior to making any decisions.
Are there some tax savings here you were not aware of? Let us know by adding a comment below