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Tax-Year Start Actions: How You Could Be Getting Your Tax-Saving Done Early

This month marks the start of a new tax year. What changes come into place this year, and how can you plan to make full use of your tax benefits and allowances? Here's a run-down of some actions you could be taking now that the 2022-23 tax year has begun.

This month the Chancellor of the Exchequer, Rishi Sunak, set out the UK Spring budget. It proposed a number of changes, including support for the current crisis in Ukraine, an increase to national insurance, a cut to income tax, and a host of other measures. In his opening remarks, the Chancellor focused on how the UK is supporting the current crisis in Ukraine, including providing roughly 400M in humanitarian aid and imposing sanctions on Russia. He had to say: “We have a moral responsibility to use our economic strength to support Ukraine and by working with international partners, to impose severe costs on Putin’s regime.

"Be in no doubt: these sanctions, coordinated with our allies, are working, but the actions we have taken to sanction Putin’s regime are not cost free for us at home." The Chancellor set out the Spring Budget, proposing a number of changes. Here's how some key changes might impact you, and some of the actions

you could be taking now that the new tax year has begun. What Was Announced In The Spring Budget? Due to global disruptions and the Ukraine crisis, the cost of living has become unusually high. To help with the crisis, the Chancellor has announced a number of changes, including a cut to fuel duty, zero VAT on energy saving materials for homeowners, and financial support initiatives to help households pay for the increasing cost of energy. The planned 1.25-percentage-point rise in national insurance contributions was confirmed to remain in place, but the threshold was increased by £3,000. This means that from July, people will be able to earn £12,570 a year before contributing to income tax or National Insurance. The Chancellor also announced that the basic rate of income tax will be cut from 20% to 19% from April 2024 and that the government plan to cut tax rates on business investment at the Autumn Budget. He stated that “something is not working” with UK investment in productivity, and announced changes to research and development tax credits, saying the generosity of reliefs for business investment would be increased to boost UK productivity. What Actions Could I Be Taking This Year?

Pensions If you're thinking of making a lump sum pension contribution, why not make it now? If it's a personal pension payment you'll benefit from an extra tax payment paid into your plan in the form of basic rate tax relief, and the whole amount will grow tax-free for another year. For higher and additional rate taxpayers, you will also benefit from further income tax relief above the basic rate through a self-assessment tax return. You'll only receive the tax relief if you have sufficient earnings to justify the pension payment, so you may prefer to wait until nearer the end of the tax year before going ahead if your earnings are uncertain. Even so, you can still invest up to £3,600 in your pension whether you are earning or not, and (here's the good bit) it will only cost you £2,880 - the extra £720 will be paid in by the Government. Most people qualify for this tax relief, including children. There are some caveats, though, so make sure you speak to your adviser before you go ahead to make sure you're doing the right thing. Individual Savings Accounts (ISAs) There is no change to the amount you can invest in ISAs, it's still £20,000 for this tax year. If you have surplus savings or investments it makes sense to make use of your ISA allowance immediately, gaining another year of tax-free growth and income. Why wait until the end of the tax year to use your allowance when you could be gaining the benefit now? Capital Gains Tax (CGT) The amount of gains you can incur before you have to pay CGT has remained at £12,300 for the 2022-23 tax year. If you have investments that have been affected by the decline in asset prices as a result of the coronavirus, it may be worth selling some shares or funds now to crystallise losses, even if you intend to hold on to your portfolio for the long term. As and when your portfolio recovers, you can then use these losses to set against future gains and keep your tax bill down.

Inheritance Tax (IHT) and Gifts There were no further changes to IHT in the Budget. Last year Main Residence Relief reached its maximum £175,000 in addition to the existing basic inheritance tax-free allowance of £325,000. For married couples or civil partners owning their home who pass on their assets to a direct descendant, this means that the combined tax-free amount is now £1 million. That still leaves a significant number of estates liable for tax, and if you're nudging up to this figure then you should consider using your Gift Allowances. You can give away up to £3,000 each tax year and this amount won't be included in your estate for Inheritance Tax. If you haven't made use of this allowance in the last tax year, you can carry it forward to this year too. In addition, you can make individual gifts of up to £250 to as many people as you like and they aren't included either. Business Planning If you're in business, you might want to consider how best to structure your remuneration to achieve the results you want. For example, if you are building your business to sell you may want to maximise profits to be able to put forward an attractive proposition to potential purchasers. If, however, you are in a growth phase then you'll want to know about the newly introduced Capital Allowances that enable you to make big tax savings on investment into plant and machinery. Getting Good Advice Are you looking to retire and need advice, planning the next stage of your life, or perhaps you want to focus on creating financial security for your family? Either way, good advice can make a real difference to your future plans. Here at Woodgate Financial Planning, many of our clients have been with us for decades, trusting us to manage, protect and grow their wealth in order to find financial freedom. If you're looking for advice, why not give us a call today to find out how we can help you?


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