2023/24 Year End Tax Review

By Alex Harper,

Tax uncertainty in an election year

2023 has been a lot more stable, politically and economically, than 2022. Rather than the multiple fiscal events of the latter, there has been a single Budget plus an Autumn Statement. However, with a pre-election Budget due on 6th March, we wait to see whether there will be major changes announced for 2024/25, particularly tax cuts. Any such changes may affect end of year planning for 2023/24. For example, it may turn out to be advantageous to delay receiving income such as bonuses or dividends until next tax year,

if they would be taxed at lower rates (perhaps because the government decides to unfreeze thresholds).

In this newsletter we set out what you need to know about the tax landscape (as currently known) over the next 12 months, but please check with us before finalising any big financial decisions, just in case the tax treatment has changed after publication.

Almost all the thresholds for both National Insurance Contributions (NICs) and income tax have been frozen until April 2028. With inflation still well above the 2% target, this freeze will pull a lot of earners into the higher tax bands as their salaries or business profits rise; this also has a knock-on effect on the amount of personal savings allowance (PSA) available to set against income such as interest, where rates have of course risen significantly in the last year or so. Income within the PSA is taxed at a nil rate.

Once into the 40% band, the PSA is cut from £1,000 to £500 per year; it disappears completely for anyone who pays income tax at 45%, which applies when income exceeds £125,140.

Individuals who are resident in Scotland pay income tax on earnings and profits at different rates.

The dividend allowance will be cut to £500 from 6 April 2024, having been £1,000 for 2023/24. This means more dividend income will be taxable each year, although the tax rates applicable to dividends are not changing in 2024/25.

The personal allowance has been frozen at £12,570 until April 2028; that allowance is tapered away by £1 for every £2 of income over £100,000 per year.

The annual exempt amount for capital gains tax will be halved from

£6,000 to £3,000 in 2024/25.

The combination of the allowance cuts and threshold freezes will affect the tax and NICs payable by directors and shareholders of family companies.

All employers need to budget for increases in the rates of National Living Wage and National Minimum Wage from 1 April 2024.

We recommend you undertake an annual review of your financial affairs, in order to check that you are not paying more tax than you need to and to see whether any structures you set up in the past are still appropriate. Between now and the end of the tax year (5 April 2024) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.

Of course, the personal circumstances of each individual must be taken into account in deciding whether any particular plan is suitable or advantageous, but these suggestions may give you some ideas. We are happy to discuss them with you in more detail.

Self-assessment key dates

Failure to notify chargeability to tax, to file your self-assessment tax return or pay any tax due on time may result in penalties. Key dates to be aware of over the next year are outlined below. Note how penalties increase with the lateness of the return.

31 January 2024

Paper returns for 2022/23 not filed by this date will be three months late and may attract a daily penalty of £10 a day for up to 90 days thereafter.

The balance of your 2022/23 tax liability, together with the first payment on account for 2023/24, is due.

2 March 2024

The first automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.

5 April 2024

The four-year time limit for certain claims and elections in respect of the 2019/20 tax year expires.

30 April 2024

31 July 2024

1 August 2024

The second automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.

5 October 2024

Deadline to notify HM Revenue & Customs (HMRC) of your chargeability to tax if you have not been issued with a return (or a notice to file a return) and you have income or capital gains to report for 2023/24.

31 October 2024

Deadline for submitting 2023/24 paper returns.

For paper returns filed by this date, HMRC should be able to:

If your paper return is submitted after this date, you will be charged an automatic £100 penalty.

Paper returns for 2022/23 not submitted by this date will now be 12 months late and subject to a further penalty of 5% of the tax due, or £300 if greater.

30 December 2024

Deadline for online filing for 2023/24 if you want HMRC to collect tax through your tax code (where you owe less than £3,000).

31 January 2025

Filing deadline for 2023/24 online returns. Payment date for balancing tax payment in respect of 2023/24 and first payment on account for 2024/25.

1 February 2025

The third automatic 5% late payment penalty will apply to any outstanding 2022/23 tax.

Time-To-Pay arrangement (TTP)

If you are struggling to pay your tax on time, you should be able to set up a TTP before the tax falls due. This will allow you to pay the tax by instalments and avoid penalties.

Please contact us if you need to set up a TTP – we can help!

Income tax

Tax thresholds

Currently, income tax rates and thresholds (except in Scotland) are set to remain unchanged for 2024/25. The Personal Allowance (PA), below which income is not taxed, is £12,570. The higher rate threshold at which 40%

tax kicks in is £50,270 and top rate tax (45%) begins when income exceeds

£125,140.

Scotland has different tax rates and bands for non-savings, non- dividend income (e.g. employment income, business profits, rental income and pension income). In the recent Scottish Budget, the following were announced for 2024/25:

Many Scottish taxpayers will now pay a significantly higher amount of tax than those elsewhere in the UK (although some lower earners pay slightly less than in the rest of the UK).

Personal Allowance (PA)

The PA of £12,570 is progressively withdrawn for individuals earning more than £100,000, leading to a marginal rate of 60% on income between £100,000 and £125,140. This rate is different in Scotland and for those who have dividend income within this band.

Personal Allowance Planning points

Gift Aid

This is a valuable relief for gifts to charities: the gift is made out of the donor’s taxed income and the charity benefits by claiming basic rate tax on the value of the gift.

Gift Aid Example

If you are a higher rate taxpayer and you make an £800 donation to a charity, the gross value of the gift to the charity is £1,000, since it can claim back the basic rate tax of £200.

You can claim an additional 20% tax relief on the gross value, reducing the net cost to £600.

In order for a donation to qualify for tax relief, the charity previously had to be located in an EU member state (plus Iceland, Norway and Liechtenstein) and be recognised as a qualifying charity by HMRC. However, as part of the post-Brexit changes to tax legislation in the UK, this is now changing.

The ability to have a non-UK charity qualify has been removed. There is a transitional period though, so that a non-UK charity which had asserted its status before 15 March 2023 will continue to qualify until 1 April 2024 (for company donations) or 5 April 2024 (for individual donations). After that, no relief will be available where donations are made to non-UK charities. This will be the case even if those overseas charities have UK activities.

Note that UK charities that carry out work in other countries continue to qualify for tax reliefs such as Gift Aid.

Gift Aid Planning points

If you are considering a gift to charity, we can make sure that it will meet the qualifying requirements. It will be particularly tax-efficient if the gross donation reduces income that would otherwise be subject to PA abatement or the HICBC.


Will you get a full state pension?

If you are looking forward to retirement, it’s a good idea to check out how much state pension you will get. You can do this by logging on to your personal tax account on gov.uk, which contains lots of useful information about how much tax you owe and about your NICs record, among other things.

To receive the full amount of the state pension, your NICs record needs to contain 35 completed years. You need at least ten complete NICs years to receive any amount of the UK state retirement pension.

Planning points for your state pension

Private pensions

Contributions within the annual allowance (AA) to pension funds attract relief at your marginal rate of tax. The combination of tax relief on contributions, tax-free growth within the fund and the ability to take a tax- free lump sum on retirement makes a pension plan an attractive savings vehicle. Saving for retirement should always be considered as part of the year-end tax planning process.

This is particularly important for those with an annual adjusted income in excess of £260,000, since the AA of £60,000 (pre-6 April 2023: £40,000) is usually tapered by £1 for every £2 of income in excess of £260,000 (pre-6 April 2023: £240,000), reducing to a minimum of £10,000 for those with income over £360,000. These last two figures were respectively £4,000 and £312,000 pre-6 April 2023. No tax relief is available for contributions exceeding the available AA.

The AA can be carried forward for three tax years to the extent it is unused. Any unused AA for the three previous years can be added to your allowance for 2023/24 and will attract full relief, subject to the level of your pensionable income (‘net relevant earnings’).

Private Pension Planning points


Abolition of the pensions Lifetime Allowance (LTA)

The LTA has, in recent years, been frozen at £1,073,100. It puts a cap on the amount of tax-advantaged pension rights that you can build up.

The value of all your pension funds was compared with this limit at certain ‘benefit crystallisation events’, such as when you first draw benefits or reach age 75. An onerous tax charge (the ‘LTA charge’) was incurred on any surplus above the LTA.

£1,073,100) unless the member holds a higher level of protection from when the LTA had previously been cut.

Planning points

Example – Asif

Asif is aged 58. He is employed at a senior level in his company and receives an annual salary of £210,000 (plus bonuses). He has a pension pot worth £990,000 but has no form of LTA protection in place.

In March 2021, he opted out of payments into his company pension scheme, given that he was getting close to exceeding the LTA and was therefore facing an LTA charge.

He plans to retire in early 2024.

Example – Mona

Mona is aged 57 and has a personal pension scheme valued at £1.6m. She planned to retire at the age of 60, due to her pension fund being worth more than the LTA limit.

If there is a change in Government, it is almost certain that the Lifetime Allowance will be reinstated (although not retrospectively). What level it would be set at is currently unknown.

This emphasises the importance, especially for those nearing retirement age, of taking action sooner rather than later.


Property owners

Letting property

Property Letting Planning points

Principal Private Residence (PPR) Relief

PPR Planning points

Furnished Holiday Lettings

A property that qualifies as a Furnished Holiday Letting (FHL) can benefit from various tax reliefs not generally available to property rental businesses.

To qualify as an FHL, the property must be furnished, located in the UK or another EEA country, and let on a commercial basis with a view to realising profits.

It must also satisfy the following tests:

  1. The property must be available for letting to the public (not family or friends) for at least 210 days per tax year.
  2. The property must actually be let to the public for 105 days or more per tax year, excluding periods of continuous occupation by the same person for more than 31 days.
  3. The property must not normally be let for periods of long-term occupation totalling more than 155 days per tax year. A period of long-term occupation is one where the property is let to the same person for more than 31 days.

Furnished Holiday Letting Planning points

Capital Gains Tax

The annual exempt amount (AEA) is £6,000 for 2023/24, but is reducing to £3,000 in 2024/25. Gains above this level are taxed as follows:

Assets transferred between married couples or civil partners do not normally give rise to a CGT charge; instead, the recipient takes over the CGT cost of the donor. This means that, when the asset is eventually sold by the recipient, the gain or loss will reflect the combined ownership period.

Gifts to other family members will produce capital gains or losses, using the market value at the time of the gift as deemed proceeds. However, where the asset is a qualifying business asset (e.g. unquoted trading company shares), a joint ‘holdover relief’ election will enable any gain to be deferred.

Non-residents are not generally subject to UK CGT. There is an exception to this rule, however, for disposals of UK immoveable property (i.e. land and buildings) and certain indirect interests in UK immoveable property.

Capital Gains Tax Planning points

Capital Gains Tax Example Scenario – David

David is a basic rate taxpayer (with £7,000 of basic rate band unused) in 2023/24 but expects to be a higher rate taxpayer in 2024/25. His sole disposal in 2023/24 of some non- residential land realises a capital gain of £15,000.

If, instead, the disposal is made in 2024/25:

Inheritance Tax (IHT)

Domicile status is a difficult legal concept and is very important for IHT. Broadly, it means one’s country of ‘natural or permanent home’.

IHT is payable at 40% where a person’s assets on death, together with any gifts made during the seven preceding years, total more than the nil rate band (NRB). The NRB is £325,000 for 2023/24 and is fixed at this level until April 2028.

Unused NRB can be transferred to a spouse or civil partner, so couples can enjoy a combined NRB of up to £650,000 on the second death. The amount transferable is the percentage of the deceased’s unused NRB at the time of their death, as applied to the NRB in force at the date of the second death.

In addition, a ‘residence NRB’ is available in respect of a property that at some point has been the deceased’s main residence and which is passed on death to a direct descendant (or their spouse).

IHT Planning points

Consider gifting assets during your lifetime to minimise the IHT payable on your death.

Most importantly of all, make sure you have an up-to-date will, that is not only efficient from an IHT perspective but also distributes your assets based on your current family circumstances. For example, trusts that were due to be set up in your will while your children were minors may no longer be needed.

Sole traders

Change in basis of assessment

Tax year 2023/24 is the transition year from the ‘current year’ basis of assessment (which charges tax on the 12-month accounting period ending in the tax year) to the ‘tax year’ basis of assessment, which will tax the profits actually arising in the tax year. Only businesses that already have a year- end between 31 March and 5 April will be unaffected by the changes.

Under the transition year rules:

Losses

Planning points

Capital expenditure

Capital allowances can be claimed on expenditure on certain types of assets used in your business. You must be careful to distinguish between

The latter attract much slower tax relief.

The rules on capital allowances can be quite nuanced and there are lots of cases where the taxpayer does not get the tax relief they were expecting, so please check the likely tax treatment with us before undertaking any major expenditure. However, we explain below some of the key points of which you should be aware.

P&M allowances

Structures and buildings

Capital expenditure Planning points

Benefits-in-kind

In some cases, an employee can avoid being taxed on a benefit if they ‘make good’ the value of the benefit by reimbursing their employer. There are strict time limits for doing this.

All reimbursements of taxable non-payrolled benefits for 2023/24 must be made by 6 July 2024, which aligns with the date for submitting the P11D forms.

The dates for making good on payrolled benefits provided in 2023/24 are:

The deadlines for making good do not apply to interest payable on beneficial loans and overdrawn directors’ loan accounts. Where such loans exceed £10,000 at any point in the tax year there is a taxable benefit if insufficient interest is paid. This benefit takes account of the loans outstanding throughout the year, not just the days when the balance was above £10,000.

This taxable benefit can be avoided if interest at least equal to the Official Rate is reimbursed, as long as the borrower is legally obliged to pay interest. The Official Rate for 2023/24 is 2.25% p.a.

Despite this exclusion from the reimbursement deadlines, most people should try to pay any interest due on a loan by the 6 July following the tax year, to avoid any doubt as to whether a benefit arises at the time the P11D form is being prepared.

Don’t miss the deadline for ‘making good’ any benefits you have received, if you want to avoid a tax charge.

 

This newsletter is written for the benefit of our clients. Further advice should be obtained before any action is taken.

  Category: Business News, Hot Topics, Monthly Newsletters, Tax Rates And Allowances
  Comments: None