The 2023/24 tax year is of course now underway and there have been several changes which may affect you. Head of Tax, Christiaan Hansen provides an overview of the key points, along with our recommendations and advice.
The rates of income tax haven’t been increased; however, the threshold for paying the additional rate (45%) has been reduced to £125,140. The personal allowance and higher rate threshold continue to be frozen, meaning more people are likely to move up a tax bracket.
This may also mean you will become liable to the high-income child benefit charge. Now is a good time to discuss these rules with us and discuss options for mitigating the charge, e.g., via pension contributions.
The dividend allowance has also been cut to £1,000 for 2023/24. This will affect all shareholders but will be of particular concern if you are an owner/manager, especially with the income tax changes, and increase to the main rate of corporation tax (CT).
Do contact us for a review, and if necessary, we can help you to revise your profit extraction strategy and even the business vehicle to ensure it is still suitable for your needs, including tax efficiency. It is far easier to do this early in the tax year rather than waiting until a few months from the end.
The pension annual allowance has increased to £60,000, so this could be a useful way to extract additional profits in a way that secures a CT deduction but no income tax charge.
The capital gains tax (CGT) rates are also unchanged, but the tax-free annual exempt amount is reduced to £6,000.
The change will make it more important to look at sharing gains, e.g. between spouses/civil partners, straddling gains across two tax years, or a mixture of both. Ensuring a good record of losses is kept will also be key to minimising CGT.
Where you look to straddle gains across 5 April 2024, remember that the exemption is to halve to just £3,000 for 2024/25. This means the maximum tax-free amount a couple can realise over the two years will be just £18,000. In previous years, this would have been close to £50,000.
If you are an owner/manager, you should discuss profit extraction strategies early in the tax year with us, following these changes to the dividend allowance and additional rate threshold. If you are a serial investor, you should be aware of the cut to the capital gains tax exemption and look at the timing of disposals to help efficiency.
Our team are more than happy to discuss your options, contact the Tax Department.