Even though there are still a few months left until the end of the official tax year, the end of the calendar year is always a great time to review your finances. Especially since the holidays are usually a time when we’re spending more than usual, it’s important to ensure that you don’t leave any financial planning until the last minute and take steps now to ensure you’re prepared.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
This practice is particularly important this year because of the many tax changes that have gone into effect that impact higher rate taxpayers. Figuring out your tax obligations in advance you can avoid an unpleasant experience later on. You’ll be able to plan and strategise so you’ll be able to meet your tax obligations and not worry about a bill come tax time, and you could even reduce your tax liability by being prepared.
Summary of tax changes
In the 2023/24 tax year, the threshold for taxpayers paying the top tax rate of 45% has decreased from £150,000 to £125,140 for everyone in England, Wales, and Northern Ireland. This is tied to taxpayers earning over £100,000 who will lose their personal allowance.
Capital Gains Tax (CGT) allowances and dividends have also taken a hit. The annual exempt amount for CGT was halved from £12,300 to £6,000 for the current tax year and moving forward from April 2024 will fall even further to £3,000. The dividend allowance has similarly been slashed from £2,000 to £1,000, with plans to decrease even more to £500 come April 2024.
How to minimise impact from these changes
The aim of tax planning always is to devise a strategy that minimises your potential tax burden. If these recent changes mean that you have moved into the additional rate tax band, here are a few strategies you can use:
- Charitable donations – No CGT is due on land, property, or shares donated to charity and any donation you make will help lower your total taxable income and in turn, how much income tax you pay.
- Selling shares – Since CGT will decrease, consider selling stocks that have gained value if that fits into your overall financial plan.
- Boost pension contributions – Very simply, pension contributions go a long way toward lowering your taxable income levels and if your strategy allows, try to maximise your contributions up to the £60,000 annual limit.
- Restructure company dividends – If you are a business owner, restructuring dividends allows you to keep your personal allowance every other year.
It’s important to remember that these strategies might not be for everyone, though, as some require careful planning and discipline, so don’t do anything without consulting your financial advisor.
Ready to minimise your tax burden?
In order to avoid undue tax obligations at the end of the tax year, make sure you are planning well in advance. To ensure you’ve maximised your options for tax relief for this tax year and beyond, reach out to an independent financial advisor. Work with a qualified IFA like the experts from Dental & Medical Financial Services so you have a head start on various strategies that could go a long way to save you tax. Get in contact to get started today.