Normally, with a new tax year comes a feeling of renewed optimism, however, I sense this year things are different. The current geopolitical situation, higher national insurance, rising inflation and unbelievable fuel prices are contributory mood factors.
1. Married couple’s benefit
Marriage allowance – If you earn under £50,000 and your partner is a non-tax payer (earning under £12,570), marriage allowance allows you to give 10% of your personal allowance to your spouse or civil partner. So that’s rounded to £1,260. Once you have applied for marriage allowance, HMRC will continue to allocate 10% additional personal allowance to the receiving spouse (and 10% less to the other spouse) each tax year until told otherwise. Every little helps!
2. ISA annual allowance
ISA limits remain at £20,000 (which includes £4,000 into a Lifetime ISA if used). Also, don’t forget the junior ISA limit is a whopping £9,000. See our recent article for full details on all available ISAs.
3. Use your Capital gains tax (CGT) allowances
The capital gains tax allowance for 2022/23 is £12,300……so £24,600 for a couple is not to be sniffed at. Assets can be transferred between spouses on a no-gain, no-loss basis. You can make use of both exemptions/basic rate bands, or offset one spouse’s loss against the other’s gain.
Transfers must be outright and unconditional. Remember the capital gains tax allowance cannot be carried forward if unused in a tax year. Use it or lose it!
I often feel sorry for CGT. It never receives the heraldry of income tax but valiantly sits there each year waiting, mostly in vain, to be used. So don’t forget this useful allowance when thinking ahead for this tax year. With the clever use of CGT your unit trust portfolio can become one big tax efficient investment if managed by a professional in the right way!
4. Inheritance tax – the ‘voluntary tax’
Sadly, many still don’t plan their IHT strategy and their beneficiaries wind up paying more tax than they have to. So do make this the year you change that!
Make use of your residence nil rate band (RNRB), currently sitting at £175,000 in 2022/23 as long as your estate net value doesn’t exceed £2,000,000. This is on top of the prevailing Nil Rate Band of £325,000. So you can pass on £500,000 without tax.
As a majority of people’s wealth is in their homes the RNRB eases the burden a little.
Remember to also use your simple annual gift allowances (£3,000 per year). If you haven’t used them lately you can carry them forward – if you didn’t use last year’s £3,000 you can gift £6,000 this year. Inheritance tax is a very complex area, there are exemptions waiting for you to use, but please remember that there are penalties for breaking the rules.
You can reduce the rate of Inheritance Tax your beneficiaries will pay by leaving broadly 10% or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) to charity. If you qualify, the normal rate of 40% would be reduced to 36%.
I would strongly recommend that you ask your financial adviser for advice in this area.
The Chancellor has not thrown us any financial lifelines of late, but sometimes going back to, and fully using our ‘tax basics’ can help. Not only by squeezing some efficiency out of our wealth but by making us feel we are taking some kind of action to improve our situation.
The levels and basis of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances. Please seek independent financial advice to check if you are using these areas fully.
Have you fully utlilised your tax allowances? Let us know by adding a comment below.