The 2022 Autumn Statement announced several tax freezes, like National Insurance and Inheritance Tax, that are coming into effect this new financial year. While the freezes may initially seem positive, the UK’s high inflationary market means that the value of your money could be reduced as wages are rising, therefore, pushing more people into higher tax brackets and, effectively, paying more tax. On top of new tax bracket changes, an estimated 1.5 million people may enter higher tax bands by 2027.
In light of these changes in the new financial year, we discuss many ways that can reduce tax bills for higher earner such as maximising any allowances and boosting your pension, which we discuss below.
Make full use of your tax-free allowance
The Capital Gains (CGT) and Dividend tax-free allowances are dropping this financial year. Higher and additional rate taxpayers will now be entitled to an annual limit of £6,000 before incurring Capital Gains Tax fees, and £1,000 before incurring Dividend Tax fees. This is a significant cut from the previous tax year – a 50% reduction. However, it’s still important to use up your allowances before you lose them, and this can be one of the most impactful ways to reduce your tax bill.
Make the most of your ISA
Investing your income and capital gains in an Individual Savings Account (ISA) makes those financial streams tax-free. This can help your money grow as opposed to having it diminished by your tax bill.
The ISA allowance for 2023/24 remains at £20,000 (£40,000 for couples), but don’t forget that any unused portions of your allowance go to waste at the end of the financial year, so topping up your ISA before the April 2024 deadline could help you maximise on your tax-free benefits.
Boost your pension
Pension contributions are free of income tax, so boosting your pension pot before the end of the 2023/24 tax year could be a worthwhile investment. From 6th April 2023, the lifetime allowance charge will be scrapped and the standard annual allowance will increase from £40,000 to £60,000.
Depending on your total taxable income, higher and additional rate taxpayers are also eligible for up to 45% of tax relief on pension contributions, which can normally be claimed through your self-assessment tax return. If your taxable income is between £100,00 and £125,140, you could benefit from 60% tax relief on your pension contributions. This is because your personal tax allowance is reduced on earnings over £100,000.
Top up your pension via a salary sacrifice
You could also consider reducing your taxable income by contributing to your pension via a salary sacrifice. This is a scheme that allows employers to reduce your salary and pay that amount into your pension pot instead, meaning that that sum evades tax implications.
If your spouse is in a lower tax bracket and you share assets, you can make the most of their tax-free allowances by transferring assets, including shares or funds. Married couples and civil partners can transfer assets tax-free. It’s useful to make sure that both your allowances are maximised before the start of the new tax year.
Engaging in volunteering and charity work not only helps boost optimism and give back to your local community, but it can also benefit your annual tax bill. Be sure to keep a record of your donations, which you can report in your tax return at the end of the fiscal year.
Higher and additional rate taxpayers are able to claim 20% tax relief on their total charitable donation. To do this, you need to:
· Register for a Gift Aid Declaration
· Keep a record of your donations
· Donate no more than four times your total income and CGT payment for the current tax year
Consult your financial advisors
There may be several options for your to consider in terms of claiming tax relief in 2023/24 and they can often require expert help. Speak to your team of financial and tax advisors about the schemes and reliefs that you might qualify for to make sure that you are benefit from all the options available to you.
Other tax relief schemes
As well as the above suggestions, there are several investment methods that can also help lower the impact of tax on your earnings this financial year by investing in small, up-and-coming businesses. All of the below methods are government-backed and designed to encourage investors to support local companies, which offers the exciting reward of boosting the economy, supporting small, start-ups, and qualifying for a series of tax benefits in returns.
Venture Capital Trust (VCT)
VCT shares are a way of indirectly investing in a pool of small companies to help them grow and develop. They also offer tax incentives that allow you to claim relief on annual investments of up to £200,000. These include:
· Income tax relief: If you hold onto your VCT shares for a minimum of 5 years, you could be entitled to claim up to 30% in income tax relief on the investment amount. For example, if you invest £10,000 in VCT shares, you could claim £3,000 back on your income tax bill.
· Tax-free capital gains: Any profits made from selling your VCT shares are not subject to CGT.
· Tax-free dividends: If you earn dividends from your VCT shares, you are not liable to pay tax and they don’t need to be stated on your tax return.
Enterprise Investment Scheme (EIS)
Similar to VCTs, an EIS allows you to make an investment in a single early-stage business (as opposed to an indirect pool) in return for a number of tax reliefs. These include:
· Income tax relief: Similar to VCT shares, you can claim up to 30% in income tax relief on your EIS investments. However, the annual claim relief cap on EIS investments is £1m, which equals to £300,000 in maximum income tax relief per financial year.
· Tax-free capital gains: If you’ve held your EIS shares for at least 3 years and you then decide to sell, all profits are free of CGT.
· Deferral relief: You can choose to reinvest any gains you earn from selling an EIS share into another EIS-qualifying share. To be able to claim deferral, you need to make the reinvestment between 1 and 3 years after receiving the original gains.
Seed Enterprise Investment Scheme (SEIS)
Investors can invest up to £100,000 per tax year in one or several entrepreneurial companies in return for up to 50% tax relief on any SEIS shares that have been held for at least 3 years.
To qualify for full SEIS tax relief, the company you invest in must:
· Be based in the UK
· Be no more than 2 years old
· Trade in an approved sector
· Have under 25 employees
· Have maximum assets of £200,000
Grow your wealth in 2023/24
If you’re looking for new investment opportunities this new financial year to ease your tax concerns, you could consider long-term growth with the Propiteer Capital Property Bond.
Our investment bond is built on fixed rates and a secure and diverse property portfolio, giving you the opportunity to easily grow your money through our asset-backed projects. Your funds are spread across a pool of asset types and locations to help minimise risk, and our flexible returns options help keep you in control of the returns you receive and how often you receive them.
To find out more about how Propiteer Capital can help you maximise your returns this financial year, visit our website or get in touch with our team today on 01376 319 000.
Tax legislation and the levels of relief from taxation can change at any time. Any change in the tax status of an investment or in tax legislation could affect the value of the investments held or their ability to provide returns to its investors. The tax treatment of an investment, and any returns received, will depend on the individual circumstances of the investor and may be subject to change in the future. If investors are in any doubt as to their tax position, they should consult their professional adviser.
Recommended Read: Planning Permission Received for Moxy Hotel