It might feel like Christmas and New Years was just a moment ago (or a very distant memory!) but now that we are in February there is a very important deadline to consider.
With the UK tax year end approaching on April 5th, 2024, now is the time for investors to take stock and consider their tax efficiency strategies. Whether you’re sitting on surplus business profits, cash savings, or simply haven’t maximized your allowances, proactive planning can make a significant difference to your tax bill.
So, use our quick guide and make sure that you don’t miss out on your 2023/24 allowances.
Surplus Business Profits and Cash Savings:
- Capital Gains Tax (CGT): The CGT allowance is reducing from £6,000 to £3,000 next year. Consider crystallizing capital gains within this year’s allowance to minimize future tax implications.
- Pension contributions: Contribute to your pension before the deadline to reduce your taxable income. Don’t forget about unused carry-forward allowances.
- Business Investment Relief (BIR): Invest in qualifying assets like Seed Enterprise Investment Schemes (SEIS) or Enterprise Investment Schemes (EIS) to offset your personal tax liability.
- Charitable giving: Donate to registered charities before the deadline to potentially reduce your tax bill.
Pension and ISA Allowances:
- ISAs: Contribute up to your £20,000 ISA allowance for tax-free investment growth and income. Consider transferring investments from taxable accounts to ISAs (“bed and ISA”) to save on CGT but be aware of potential market exposure gaps.
- Pensions: Use your annual pension allowance (£60,000, with the potential for more with carry-forward) to benefit from tax relief and build retirement savings.
- Junior ISAs and Junior SIPPs: If you have children, contribute to their Junior ISAs and Junior SIPPs for long-term tax-efficient savings*.
*Even with much lower allowances than adults, imagine the impact of investing a few hundred pounds a year from day 1!
Exploring Alternative Investment Options:
- Venture Capital Trusts (VCTs): Invest in smaller, unlisted companies through VCTs for potential tax benefits (like 30% income tax relief) and high growth potential. Standard Investment risks involved.
- Enterprise Investment Schemes (EIS & SEIS): Invest in early-stage businesses through EIS for income tax relief (30 – 50%), CGT deferral, and potential for significant returns. Understand the higher risks and illiquidity associated with these investments.
Act before the deadline: Don’t miss out on valuable tax allowances by procrastinating. Act well before April 5th to optimize your tax position*.
Consider your long-term goals: While tax efficiency is important, don’t compromise your long-term investment strategy for short-term tax savings.
By proactively managing your finances and exploring available options, you can significantly reduce your tax liability and set yourself up for a financially secure future. Remember, the earlier you start planning, the better equipped you’ll be to navigate the end-of-tax-year rush and make informed decisions that benefit your financial well-being!
*Do not leave things to the last minute! Providing advice is a complex thing so calling up on the 1st of April to talk about VCTs is far too late in the day.
By Alex Fry (Director & Financial Planner)
alex@goddardfry.co.uk