New Year's Financial Resolution
The New Year allows us all to resolve to do things that we may have neglected, forgotten, or ignored in previous months knowing that we should get round to doing them…but maybe not today.
A quick financial health check ahead of the tax year end is always recommended but especially this year as allowances are reducing or – at best – remaining frozen. Appreciating the tax efficiency benefits is important, even if it does not lead to direct action. Inaction, so long as it is conscious, can also be a wise strategy.
Pension Contributions continue to offer tax efficiency benefits, particularly for higher rate and additional rate taxpayers. An individual can invest up to a maximum of £40,000 per annum and “carry back” up to a further 3 years’ contributions. In our experience, business owners and the self-employed can often overlook this, with their focus being very much on running the business and thinking of others. In such circumstances, these payments can be offset against profits and hence reduce corporation tax. (This tax, too, is set to rise in the coming year.)
There is a very good article on the State Pension elsewhere in this newsletter where action ahead of the tax year end could be advisable.
The ISA £20,000 allowance is available for all individuals and £9,000 for a Junior ISA. This is a very simple ‘use it or lose it’ opportunity and it might well be worth looking at “taxable” cash savings and how best to benefit from the efficiencies/allowances available.
Gifting to benefit future generations can be achieved in many ways including via JISAs, stakeholder pensions, or cash to help with the cost-of-living impact. Regular small gifts or gifts out of disposable income are other areas that can benefit children and grandchildren during these times. This could also serve to reduce your own estate and therefore create possible IHT savings opportunities.
The Capital Gains Tax exemption is currently £12,300 per individual but this will reduce to £6,000 next tax year and to only £3,000 from April 2024. Action including gifting to spouses or civil partners can help utilise the allowance. Again, a very simple ‘use it or lose it’ allowance.
Tax-free dividend allowances currently stand at £2,000. This reduces to £1,000 next tax year, falling to £500 in 2024. Business owners should take note.
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) can provide significant tax advantages but do require specific advice to ensure their suitability.
Highlighted above are certain areas that deserve consideration; there are additional possibilities, dependent upon your own personal or family circumstances. Please let us know if we can help with any aspect; but in the words of Benjamin Franklin, “Don’t put off until tomorrow what you can do today.”