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Say ‘Yes’ to end-of-year financial planning opportunities

13 Mar 2023

The end of the tax year always presents significant opportunities for financial planning. But as the end of the current tax year on 5 April approaches, the importance of taking up those opportunities and just as importantly the detrimental financial impact of not doing so are if anything even greater than in previous years.

With the high level of inflation leading to rising incomes and asset prices, the decision by Rishi Sunak in 2021 to freeze a whole series of allowances and tax band thresholds is pushing millions into paying more tax, many for the first time. While what’s called fiscal drag doesn’t actually raise tax rates, it means that more money and wealth is being taxed.

On top of this, unless the Chancellor does an abrupt about turn in this week’s Spring Budget, from the start of the 2023-24 tax year some allowances will be cut. The threshold for paying 45% income tax is set to be reduced.

The principle of use it or lose it, which particularly applies to available tax allowances and exemptions comes into play here. In many instances, this means that to maximise this year’s end-of-year tax planning opportunities action must be taken before 6 April. That’s in less than a month’s time.

If you answer ‘yes’ to any of the following questions, depending on your individual circumstances, you may be able to reduce your tax liability and give your finances a welcome boost.

Are you sitting on capital gains?

With the annual exemption on Capital Gains Tax (CGT) due to be cut from £12,300 to £6,000 from April 6 and halved again to £3,000 from April 2024, it could make sense to sell assets before the end of the current tax year. CGT is charged on a range of assets, including stocks and shares, bonds, businesses and property.

Do you have savings or investments that are currently subject to tax?

For millions of people, Individual Savings Accounts (ISAs) are an invaluable way to make tax-free returns on their money and investments. The maximum you’re allowed to put into an ISA is £20,000 a year, so if you haven’t made maximum use of your allowance you could be missing out on tax free income and capital growth. An obvious way to give your household finances a boost is for your partner to open an ISA, which at a stroke doubles the amount you are allowed to contribute to £40,000.

If you hold investments in a General Investment Account (GIA) that might be subject to dividend tax or CGT, consider moving them into an ISA. Transfers may be possible through a process known as ‘bed and ISA’. Because of possible CGT liability and other potential complications, it’s best to contact your Financial Adviser if you’re considering this. The use it or lose it principle applies to all ISA allowances, including Junior ISAs and Lifetime ISAs (LISAs).

Do you have any of your gifting allowances left?

Gifting can be an effective way to reduce Inheritance Tax (IHT). In addition to the £3,000 of gifts that you can give away each tax year without them being added to your estate, there’s also the £250 small gifts exemption, which you can give to as many people as you want and up to £5,000 if you’re a parent of a child getting married.

The IHT nil rate band (NRB) and the residence nil rate band (RNRB) (amounts which can be passed on to beneficiaries at death free of inheritance tax) are due to remain at £325,000 and £175,000 respectively until at least April 2028, accentuating the impact of fiscal drag over time as the value of assets such as house prices rise.

Generally, assuming you have the means, it’s a good idea not to delay gifting to family and loved ones. The seven-year rule means any gifts made over and above the various exemptions and allowances only fall outside your estate as long as you live for seven years from the date of gifting.

If you’re a couple, do you or your partner pay income tax at a higher rate than the other?

Assets transferred between married couples or civil partners do not generally result in a CGT charge. Consequently, transferring assets to the person who pays tax at a lower rate – who then sells them, could result in a lower CGT bill.

Are you paying into a pension?

Tax relief on pension contributions means that it pays to use up as much of the annual tax-free allowance of £40,000 as possible, especially if you’re a higher or additional rate taxpayer. Thanks to tax relief, to boost their pension pot by £10,000, a basic rate taxpayer only needs to contribute £8,000, with the government adding £2,000 in tax relief. Higher and additional rate taxpayers, who can claim back extra tax relief from HMRC need contribute even less of their own money to receive the same boost to their pension pot.

Under the carry-forward rules, the period from now until the end of the current tax year is the last opportunity to make use of any unused allowance from the 2019/2020 tax year, although note that that you must first have fully used up this year’s £40,000 allowance. The effect of contributing, say £20,000 – which includes any tax relief into your pension is to extend your personal allowance by that amount. Although putting more into your pension as the end of the tax year approaches is generally a good idea, watch out that in doing so you don’t breach the pension lifetime allowance of £1,073,100, as anything above this figure could result in a tax charge of up to 55%.

Are you a non-taxpayer or earn less than £3,600 a year? 

For non-taxpayers, or those who earn less than £3,600 a year, it makes sense to make maximum use of the £3,600 annual allowance, which means that as long as you put £2,880 into a pension by the end of the current tax year you’ll receive a £720 top-up from the government. Only UK residents under the age of 75 can make pension contributions.

One thing to be wary of is the Money Purchase Annual Allowance (MPAA), which in certain circumstances restricts the amount that you can contribute to £4,000.

Are you in a position to choose when to take dividends from your business?

With the allowance on income from dividends set to be halved to £1,000 a year from the start of the 2023-24 tax year and halved again in the 2024-25 tax year, owners of limited companies could benefit by paying themselves dividends this tax year rather than delaying.

Do you or your partner earn below the income tax personal allowance of £12,570, while the other partner is a basic rate taxpayer?

You may qualify for the marriage allowance, whereby any unused allowance from the non-taxpayer can to be added to the allowance of the basic rate taxpayer, reducing the latter’s income tax by up to £252 a year. Claims for marriage allowance can be backdated for up to four years, i.e. back to 2018-19, potentially saving £990 in tax. Consequently, delaying until after April 5 could potentially mean losing the opportunity to save £238 in tax.

Is your income more than £100,000 a year?

With the reduction of the additional rate tax threshold above which tax is charged at 45% due to be slashed from £150,000 to £125,140 in a month’s time, where feasible it could be worthwhile bringing forward income into the current tax year.

Summing up

With more people set to pay more tax, taking advantage of end-of-year financial planning opportunities is especially important this year. If you need any help to make the most of this year’s end-of-year financial planning opportunities, please contact your Financial Adviser. And remember, especially when it comes to allowances and exemptions, if you don’t make maximum use of those available to you by 6 April, you’re likely to lose them forever.

Important information

The views expressed by Courtiers in this summary are reached from our own research. Courtiers cannot accept responsibility for any decisions taken as a result of reading this article. Investors are recommended to take independent professional advice before effecting transactions and the prices of stocks, shares and funds, and the income from them can fall. Past performance is not a guide to future returns. Tax treatment depends on individual circumstances and may be subject to change in future. We do not endorse or accept responsibility for website content on any websites other than those operated by Courtiers, which may be accessible via links in this article.


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