Depending on your personal circumstances, and by making the most of unused reliefs or allowances there may be some tax mitigation opportunities available to you. We have provided just a few suggestions you may want to consider prior to the end of the tax year. It might also be prudent to make a wider review of your personal and financial circumstances and to make any adjustments to your financial plan for the year ahead

Check your PAYE tax code

It’s important to check your tax code. Your tax code is based on the amount of tax you should be paying and the amount you can earn before tax applies. The tax code is the identifier that tells your employer how much tax should be deducted from your salary each time you get paid. If you have multiple employers or pension providers, you may get more than one tax code. If you’re on the wrong one, you could be paying HM Revenue & Customs (HMRC) more than you ought to be. On the other hand, you risk getting penalised if you’re paying too little.

Transfer part of your personal allowance

Married Couple’s Allowance could reduce your tax bill each year if you’re married or in a civil partnership. For the 2022 to 2023 tax year, it could cut your tax bill by between £364 and £941.50 a year.
You can use Gov.Uk’s Married Couple’s Allowance calculator to work out what you could get.

Contribute up to £9,000 into your child’s Junior ISA (JISA)

The fund builds up free of tax on investment income and capital gains until your child reaches age 18, when the funds can either be withdrawn or rolled over into an adult ISA. Relatives and friends can also contribute to your child’s JISA, as long as the £9,000 limit for 2022/23 is not breached.

Tax-free savings and dividend allowances

For 2022/23, the Personal Savings Allowance is £1,000 and this amount is exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers. The tax-free dividend allowance is £2,000 for all taxpayers. Married couples and registered civil partners could save tax by ensuring that each person has enough of the right type of income to make use of these tax-free allowances.

Individual Savings Accounts (ISAs)

You can invest in a Cash ISA or a Stocks & Shares ISA, or a combination of both. Usually when you invest, you have to pay tax on any income or capital gains you earn from your investments. But with an ISA, provided you stick to the rules on how much you can pay in, all capital gains and income made from your investments won’t be taxed. Every tax year you have an ISA allowance, which is currently £20,000 for the 2022-23 tax year.

Don’t lose your ISA allowance; for more information on ISAs get in touch to receive our guide.

Utilise any capital losses

If you realise capital gains and losses in the same tax year, the losses are offset against the gains before the Capital Gains Tax exempt amount (£12,300 in 2022/23) is deducted. Capital losses will be wasted if gains would otherwise be covered by your exempt amount. You could consider postponing a sale which will generate a loss until the following tax year, or alternatively realising more gains in the current year.

This is set to change after it was announced in the November 2022 Autumn Budget that from April 2023 (2023/24 tax year), this exemption amount will reduce to £6,000 for individuals (£3,000 for most Trustees), and from April 2024 (2024/25 tax year), the amount will be reduced again and permanently fixed at £3,000 for individuals (£1,500 for Trustees).

Maximise pension contributions

The annual allowance for 2022/23 is £40,000. To avoid an annual allowance tax charge, the pension contributions made by you and, if relevant, by your employer on your behalf, must be covered by your available annual allowance. If you haven’t used all your allowance in the last three tax years, it might be possible to pay more into your pension plan by ‘carrying forward’ whatever allowance is left to make the most of the tax relief on offer, though bear in mind the amount is still capped at 100% of your earnings.

Just be aware that different rules apply if you’ve already started to take money out of your pension plan and you’re affected by the Money Purchase Annual Allowance, or if your income when added to your employer’s payments are more than £240,000.

Pay pension contributions to save National Insurance Contributions (NICs)

If you pay pension contributions out of your salary, both you and your employer must pay NICs on that salary. When your employer pays a contribution directly into your pension scheme, the employer receives tax relief for the contribution and there are no NICs to pay – a saving for both you and your employer. You could arrange with your employer to cover the cost of the contributions by foregoing part of your salary or bonus. You must agree in writing to adjust your salary before the revised pension contributions are paid for this arrangement to be tax-effective, although pension contributions are not caught by the clampdown on salary sacrifice arrangements.

You should be aware that reducing earnings via salary sacrifice can impact entitlement to income-related employer and Government benefits and may not be appropriate for everyone.

Make a Will and review it

If you die without making a Will, your assets will be divided between your relatives according to the intestacy rules. Your surviving spouse or registered civil partner may only receive a portion of your estate, and Inheritance Tax will be due at 40% on anything in your estate above £325,000 (up to £500,000 if the Residence Nil Rate Band is available).

Leave some of your estate to charity

Where you leave at least 10% of your net estate to charities, the Inheritance Tax on the remainder is charged at 36% instead of 40%.

Wills and Estate Planning can be very complex areas, and you should ensure you speak to a regulated Wealth Planner to ensure you received professional advice to understand what’s right for you and your situation.

Make regular IHT-free gifts

As long as you establish a pattern of gifts that can be shown to be covered by your net income, without reducing either your capital assets or your normal standard of living, these gifts will be free of IHT. The recipients of the gifts need not be the same people each year.

Use the IHT marriage exemption

If your child is about to marry, you and your spouse can each give them £5,000 in consideration of the marriage, and the gift will be free of IHT. The marriage exemption can also be combined with your £3,000 a year Inheritance Tax exemption to allow you to make larger exempt gifts. You can also make an IHT-free gift of £2,500 for a grandchild’s wedding. Registered civil partnerships attract the same exemptions.

Make IHT-free gifts each tax year

These gifts are free of IHT and, if you forget to make your £3,000 gift one year, you can catch up in the next tax year by giving a total of £6,000 but you can only carry forward the £3,000 allowance for one tax year. Remember, you and your spouse or registered civil partner can each give £3,000 out of your capital every tax year, in addition to gifts you make out of your regular income.

If you’d like to read more about IHT and Gifting, get in touch for our free guide.

Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The content of this article was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.

The information in this article is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.

Please note, The Financial Conduct Authority does not regulate advice on taxation, Estate Planning and Will writing.

You should seek legal advice to ensure that your Will reflects your wishes and is legally binding.

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