The UK's tax year draws to a close on the 5th of April, so individuals and families must focus on taking strategic actions to optimise their financial affairs. This critical period compels taxpayers to evaluate their income, expenditures, and tax liabilities ...
However, individuals earning between £100,000 and £125,140 face a tapering of their personal allowance, effectively imposing a 60% tax rate on income within this band. By recognising this, individuals with fluctuating income can work towards mitigating this effective rate as pension contributions and charitable donations directly reduce taxable income!
Family businesses present a unique opportunity to strategise within the confines of the tax year. Directors can consider paying dividends, salaries, or bonuses to family members with lower income levels. Such distributions ensure that family members can take full advantage of their personal allowance, thereby minimising the overall tax liability for the household.
Trustees should also contemplate the timing of income distributions to beneficiaries, ensuring that those with unused personal allowances can benefit before the tax year concludes.
The maximum annual pension allowance for individuals with qualifying earnings up to £260,000 is capped at £60,000. However, for higher earners, this allowance diminishes as income rises, with a minimum allowance of £10,000. Importantly, individuals should remember that unused allowances from the previous three tax years can also be carried forward to the current year, permitting a significant boost to retirement savings without incurring tax.
Given these circumstances, it is wise to engage with your accountant and financial advisers to assess and maximise the tax benefits derived from pension contributions. It is noteworthy that the maximum tax-free lump sum one can withdraw upon retirement stands at £268,275, allowing for strategic financial planning.
Those with charitable inclinations should also deliberate on making contributions to their favourite registered charities. Not only do charitable donations foster social responsibility, but they also provide significant relief against income tax liabilities. Contributions can be made through Gift Aid, which allows charities to reclaim tax on donations, essentially bumping up the value of your contribution at no extra cost to you. There's a dual advantage of supporting meaningful causes while also securing tax relief.
The end of the tax year represents an optimal time to review investments held within Individual Savings Accounts (ISAs). The annual ISA allowance for the upcoming tax year is projected to remain at £20,000, a cap that allows for tax-free growth and income. Individuals are strongly encouraged to utilise this allowance fully before the tax year concludes.
Remember the value of Income tax relief of 30% for EIS and 50% for SEIS and there are also exemptions from Capital Gains Tax on disposal of assets reinvested into such investments. There's also exemptions of £3,000 on Capital Gains Tax which isn't to be sniffed at.
Dispite the doom and gloom in the economy right now, understanding where you stand can will provide you with clarity moving into the new tax year.
And this will ensure a fresh start to the tax year devoid of lingering fiscal concerns.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.