As featured within Business Cornwall magazine, Tax Partner, Steve Maggs, offers this useful checklist of advice for the new tax year:
It is that time of year again when we reflect and make plans to review and tackle things we have been meaning to for a while. Reviewing your tax and financial position should be included in these plans. This represents an overview of some tax planning points you may wish to consider.
- Income splitting – Married couples/civil partners should review their level of taxable income received in the year to make use of tax savings by structuring their affairs to ensure that both use their personal allowances and basic rate tax bands.
- Watch exposure to stealth taxes – for example the loss of the personal allowances where your taxable income exceeds £100,000, or the required repayment of child benefit (the High Income Child Benefit Charge) where you or your partners’ taxable income exceeds £50,000.
- Pensions – Seek to make use of any unused annual allowances from the previous 3 years. It is prudent to become a member of a registered scheme (if you are not already). Pensions are incredibly useful for inheritance tax planning purposes. Director/shareholders should strongly consider their company making employer contributions on their behalf where cash is not required for the working capital of the business and they do not need to extract it as income (not needing the cash in their hands personally).
- Use of a company – If you are a higher or additional-rate taxpayer, structuring your business or investments through a limited company can significantly reduce your tax liabilities.
- Use your basic-rate income tax thresholds by voting dividends from your personal/family company – this should be considered each tax year, providing the company has available reserves (accumulated profits). Even if the company does not have the cash to pay the amount to you, this can be left as a loan to the company.
- Consider your cash extraction strategy from your company – the vast majority of limited companies will be required to public their accounting profit with their accounts filed at Companies House, as part of new law. This has prompted director/shareholders to consider their cash extraction strategy, along with the usual considerations as to changes in circumstances and tax efficiency comparison.
- Watch the further reduction to the capital gains annual exemption – the annual exemption is further reducing to £3,000 (from the current £6,000) from 6 April 2024. This will mean many more capital gains being subject to capital gains tax and needing to be reported to HMRC.
- Capital Allowances – Often an overlooked aspect when investing in new ventures. Consider when purchasing a furnished holiday let or commercial property.
- Making Tax Digital (MTD) – Whilst the implementation has been significantly delayed, MTD is still coming! The required entry dates are currently: 6 April 2026 if you have an annual business or property income of more than £50,000, and 6 April 2027 if you have an annual business or property income of more than £30,000.
- Inheritance tax – given the freezing of inheritance tax nil-rate bands, and the rates of inflation and property inflation, an increasing number of estates are being subject to inheritance tax at 40%. This is a significant liability for estates to suffer, and is a tax that can be adequately mitigated. Consider seeking advice from competent, experienced advisers.
- Inheritance tax Business Property/Agricultural Property Relief – A regular review of the availability of these valuable reliefs is essential. This is particularly important over the coming 12 months given that we are expecting significant changes (probably narrowing of the availability of these reliefs) in the coming news under a new government. Those currently benefitting from these reliefs should consider implementing planning to ‘bank’ the benefit now.
- Will – Is your Will up to date? Consider making a Will if you have not made one.
- Lasting Powers of Attorney – Certainly just as vital for future assurance. This is to cover your position should you lose cognitive mental capacity during your lifetime – particularly when you have dependants.
The new tax year is a prompt to consider these points (and others).
Tax has become increasing more complex, and the supply of good, practical, competent tax advice is unfortunately relatively scarce. We are the leading tax specialists in Cornwall and can assist you with any tax advisory needs.
This article was published for Business Cornwall magazine, on 31 January 2024 (Page 25): Business Cornwall Feb 24 by Business Cornwall – Issuu