Happy New Tax Year from all of us at Prosperis!

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It is April 6th, so it’s a Happy New Tax Year from all of us at Prosperis!

Whilst we have just closed the door on the annual flurry of tax year end activity, from 6th April 2023, some significant changes and opportunities exist and where some early action, planning and thinking would be prudent. We have produced an abbreviated table below, with some of the changes highlighted. 

What action is taken clearly depends on your personal circumstances, but some of the key points for consideration might be.

The Personal Allowance

This has been retained at the same level for the third tax year in a row and is scheduled to remain at this level until 2025/26. Sitting alongside this, the amount you pay tax at 20% has been kept the same at £37,700. So, you still have a total income limit of £50,270 to stay within basic rate tax.

If you have enjoyed increases of income either from earnings or pensions (including the State Pension), it is likely you may be moving into a higher tax band, or, at least, edging closer.

Higher Rate taxpayers will still have the reduced personal allowance trap when income exceeds £100,000 but, more importantly, the level of income when you enter ‘Additional Rate Tax’ is now £125,140, immediately above where you have lost your personal allowance!

The tax band you ultimately pay income tax has ramifications to other allowances, including where you have savings interest or dividend income.

Bank Interest

It will not have escaped the notice of many that interest rates have shot up over the last year having been relatively static since the global financial crisis in 2008/9. For many, this may bring shocks around the corner for mortgage payments, but for those with cash on deposit, there are now real returns to be had from interest earned.

This does bring a tax sting in the tail though. Since it was introduced in 2016, the Personal Savings Allowance has been quietly sitting at £1,000 for basic rate taxpayers and £500 for high rate taxpayers. This means relatively modest savings can now generate interest that could breach these limits and create a tax liability.

Dividends

Back in 2016/17, the Dividend Allowance was introduced at £5,000 as a method of easing the administrative burden on HMRC for smaller investment portfolios, particularly for those who accumulated privatisation shares. This allowance has been reduced over the years, now falling to £1,000 in 2023/24.

The chancellor perhaps has seen this as a way of clawing back the ‘lost’ tax of SME limited company remuneration structures, but this will impact investors holding investments outside of tax-efficient structures such as ISAs and Pensions.

Capital Gains Tax

This is another allowance that sees a reduction of just over 50% to £6,000 and will follow with a further halving to £3,000 next year. Affecting a wide range of investments and interests such as property portfolios, business shares as well as unwrapped investment portfolios, it is fair to say that growing asset values are providing growing returns to HMRC. Receipts were up 33% year on year in 2021/22!

Pensions

Perhaps part of the answer to some of the new and existing tax issues we have identified is the use of pension contributions. The March 2023 Budget saw the removal of the Lifetime Allowance tax charge and an increase in the Annual Allowance to £60,000.  For those that have already accessed pensions, or intend to, the Money Purchase Annual Allowance has been restored to a modest £10,000.

For those that can contribute, tax relief remains available at your individual marginal rate of income tax. In respect of contributions from companies liable to the new rates of corporation tax, pension contributions, as an expense of the business, remain an excellent way of extracting profit whether you are a business owner or looking to boost your employees’ pension values. The increased allowances and retention of Carry Forward provides plenty of scope.

Inheritance Tax (IHT)

With these tax changes so far, Benjamin Franklin’s oft quoted ‘Nothing is certain except Death and Taxes’ remains truer than ever! Like Capital Gains, Inheritance Tax receipts have been growing year on year for the Treasury. The allowances are unchanged and stated also to remain as they are until 2025/26. However, unlike Franklin’s certainty, Roy Jenkins, and more latterly Gordon Brown, reminded us that this is a ‘voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue’.

IHT Planning

The cornerstone of any legacy planning starts with your Will and Lasting Powers of Attorney. We have established relationships with excellent professionals who we work with and will ensure these are in place, relevant and, if necessary, brought up to date. The growing tax receipts of inheritance tax and capital gains tax is proof enough that wealth is growing and this is not set to slow down any time soon.

How can Prosperis help?

Next year’s tax year end will still be as busy, but where you can, we would encourage you to act and plan earlier in the tax year. For example, are you able to make contributions to ISAs and pensions early in the tax year? Business owners should look at year end dates and make the most of personal and company tax deadlines. More importantly, even though we remain in volatile and uncertain times, with the best will in the world, it is impossible to eradicate tax and you must not let this distract from longer term investment growth!

Please contact your Prosperis adviser to discuss any of the points raised and we look forward to guiding through the solutions and opportunities presented.

Please note, these tables are not exhaustive and where relevant are based on income tax rules in England & Wales only.  Prosperis Ltd is not a tax adviser and you should seek independent tax advice where appropriate.