Good housekeeping for the new tax year
As a new tax year dawns in the UK, it’s never too soon to start engaging in meaningful tax planning says Nicholas Toubkin, Director in the Wealth Planning Division.
These can be split into ‘good housekeeping’ exercises that are important to consider on an annual basis, and more strategic planning measures that might be relevant to you depending on your circumstances.
Good housekeeping:
The earlier you use certain tax allowances, the more you shelter assets from ongoing tax.
Steps that you can make immediately in the new tax year are the following:
- Use the £20,000 annual allowance for an adult ISA
- Use the £9,000 annual allowance for a junior ISA
- Consider funding a pension for children with an annual maximum contribution of £2,880 for those without employment income
Placing assets in a tax efficient wrapper early in the tax year can yield meaningful financial results. The sooner monies are wrapped in an ISA, the sooner dividend payments and any growth is protected.
Later in the year, once your income position for the tax year becomes clearer, it is worth considering what scope that you have to make inheritance tax efficient ‘gifts out of regular income’, and the possibility to make additional pension contributions, carrying forward unused allowances from previous tax years.
Strategic planning:
Good annual tax planning is essential, and it is also important to pay attention to changes in your own personal tax circumstances and changes to tax legislation that might affect you. Examples of these include:
- Corporation tax rates will increase from 19% to 25% with effect from the 1st April 2023. Does this impact any corporate structures that you control, and are there any planning steps that you can take in order to benefit from the existing rate?
- If you are planning to become tax resident in the UK, or intending to expatriate from the UK, it is invariably valuable to plan your tax strategy one tax year in advance of your move. As a result, if you anticipate changing tax residence in the coming years, take professional advice now.
- For foreign nationals who have been resident in the UK for a number of years, it is important to be conscious of the prospect of becoming ‘deemed domicile’ in this country. This is relevant if you have lived in the UK for fifteen of the last twenty tax years immediately before the current tax year. If this fifteen year anniversary is approaching, there are significant planning and structuring opportunities that should be considered in the tax year before you become deemed domicile.
- Various tax allowances have been frozen in recent years. Most notably, the inheritance tax nil rate band and pension lifetime allowance are expected to remain at their current levels for the foreseeable future. In an inflationary environment, this means that these allowances are shrinking in real terms. It’s worth thinking about how this will impact on you both now, and in the years to come.
Please note: this article only applies to UK resident and domiciled clients.
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