Many of them are lost if not used, though you should remember some reliefs can create additional problems if you're not careful and in some cases, trying to save tax could actually cost you more money.
Start with your personal allowances
The Income Tax personal allowance for 2022/23 is £12,570. Any amount of income up to this value will be free of income tax. Think of ways to help family members whose income is less than this. Maybe paying dividends above their dividend allowance along with trust income distributions where possible.
Remember that the tax payable on an income of £100,000 one year and £150,000 the next is less than the tax on an income of £125,000 per year for two years. Knowing this can save you a lot of tax in the long run.
Capital Gains Tax
Capital Gains Tax annual exemption is £12,300 of gains realised without tax. If you haven't made any gains up to this amount then consider selling assets, but remember you can no longer 'bed & breakfast' chargeable assets for up to 31 days or the two transactions will cancel each other out.
Pension Contributions Relief
If your income is no more than £240,000 for the tax year, your maximum annual pension allowance is £40,000. As income increases, allowances reduce and unused allowances from the previous three years can be set against the current year's contributions. Be careful as your lifetime allowance is £1,073,100 so any contributions above that mean a 55% tax charge on the excess.
Charitable donations will qualify for tax relief by an extension of the donor's basic rate tax band. It's a little confusing when you think of the mechanics of this, but as an example, if that 40% taxpayer makes a donation of £100, the charity receives £125 and the donor can claim back £25. Watch out for traps though. If you claim gift aid and haven't paid enough tax to match it, your liability actually increases.
An annual gift exemption of £3,000 can be carried forward one year which means you can make a gift of £6,000 every two years without being hit for Inheritance Tax if you don't survive beyond the seven-year threshold. Giving away unneeded wealth while you are reasonably healthy is a really great idea. There must be a regular pattern to your giving and I strongly recommend you speak to a tax professional before undertaking this strategy.
EIS and SEIS allowances
There is tax relief given for qualifying investments in certain trading companies using the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), but the company must have approval from HMRC to take part. Up to 50% relief on the investment amount can be attractive as are exemptions from Capital Gains Tax on disposal and the ability to roll your investments elsewhere. There are important considerations to be made before getting involved in EIS and SEIS as it could backfire and actually cost you money.
HMRC, the Treasury and the overall UK tax system encourage taxpayers to properly plan and act each year to use up all their reliefs and allowances that can help them make substantial savings.
Always speak to a tax professional regarding your year-end tax planning. We're here to help you.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about year-end tax planning, it may be a great idea to call me on 01908 774320 and let's see how I can help.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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