Tax Tip Planning
Over the next few weeks, we will be running a series of articles on Tax Planning Tips for 2023/24. These general tips highlight ways in which you can currently use certain tax reliefs to your advantage, and how to avoid some of the tax penalties. It can help you navigate the complexity of certain tax rules and create more tax-efficient plans.
The first in the series is Personal and family planning.
Check your PAYE tax code.
HMRC changes PAYE tax codes dynamically when your salary changes, but it can’t easily distinguish between a temporary increase, such as a bonus, and a permanent pay change. Your tax code may also include estimated amounts of savings income, based on what you received in an earlier year. Check your PAYE code by signing into your personal tax account at http://www.gov.uk/personal-tax-account and use the options there to amend any estimated income and correct any other errors.
Transfer some of your unused personal allowance.
Married couples and civil partners can transfer 10% of their personal allowance between them (£1,260 for 2023/24), providing an overall tax saving for the couple. This transfer is not permitted if the recipient pays tax at a rate higher than the basic rate of 20% (higher than the intermediate rate of 21% for Scottish taxpayers). You can backdate a claim for up to four years, so a claim made by 5 April 2024 can include 2019/20.
Leila receives an annual salary of £45,000. Her husband has no taxable income, so doesn’t use his personal allowance. For 2023/24, they could save tax of £252 (£1,260 at 20%) by transferring 10% of the husband’s personal allowance to Leila.
Check how much national insurance contributions (NICs) you pay.
If you have two or more concurrent jobs you may pay more NICs than you have to. You can reclaim any overpaid NICs from HMRC after the end of the tax year. However, you can prevent the overpayment occurring in the first place by deferring payment of NICs on one of your jobs by sending HMRC a completed form CA72A (either online or by post) by 14 February in the tax year, but ideally earlier.
Top-up your state pension entitlement.
Check your NIC record for your entire working life in your personal tax account at http://www.gov.uk/personal-tax-account. If there are gaps in that record you may not be entitled to the full state pension. Until 31 July 2023 you can fill any gaps in the NICs paid since April 2006 by paying voluntary class 3 NICs. After that date only gaps arising in the past six years can be filled in this way.
If you and your partner both own homes when you marry or enter a civil partnership, choose which will be your main home.
Once married, you can have only one main home between you for tax purposes. If you both own separate properties which you continue to occupy for some periods, nominate the one that is likely to make the best use of your capital gains tax (CGT) main residence exemption. This needs to be done within two years of your marriage/civil partnership, otherwise HMRC will designate the property that you occupy for the majority of your time as your main residence.
If a property has been your nominated main home at any time, the gain for the last nine months of ownership is exempt from CGT (see tip 18).
When selling a home, be prepared to pay any CGT due within 60 days of the completion date.
If you sell or give away a UK residential property, you must report and pay any CGT due to HMRC within 60 calendar days of the completion date. This is done via an online UK Property Account, with a separate declaration of the same gain also required if you have to submit a self-assessment tax return. If there is no tax to pay you don’t have to report the sale on the UK Property Account, but it may still be relevant to your tax return. Penalties may be charged for reporting late and/or paying the CGT late.
If you or your partner receive child benefit, check whether you have to pay a tax charge to pay back some of the child benefit received.
Where the highest earner in the family has income over £50,000, the extra tax charge for that person is equivalent to 1% of the child benefit for every £100 of their income over £50,000. To mitigate the tax charge, you can halt your child benefit payments, but keep the claim alive to protect the claimant’s state pension entitlement. For 2023/24, some basic rate taxpayers will be caught by the charge as the basic rate threshold is £50,270.
If the income of the higher earner has fallen below £50,000, you can ask HMRC to start paying the child benefit again. Don’t delay, as the payments can only begin from the Monday after you ask HMRC to reinstate them.
Anna receives child benefit in respect of her two children and until recently made an annual profit of £60,000 from her self-employment. Some years ago she asked HMRC to halt her child benefit payments so she didn’t have to pay the tax charge. Anna predicts her net profit will be around £45,000 for 2023/24. On 5 April 2023, Anna asked HMRC to restart her child benefit and those payments will be made from 10 April 2023.
Plan to minimise tax when selling your trading company by spreading the shareholding between you and your spouse.
If you both meet the 5% shareholding test for two years or more before the sale and are both either an officer of the company or employed by it, you should both qualify for the 10% rate of CGT on any gains made when the company is sold. This reduced rate of CGT applies to the first £1 million of gains made on the disposal of qualifying business assets during each person’s lifetime.
Don’t pay too much income tax on account in July and January.
If your income is reducing, perhaps because you are winding down to retirement, the payments on account of tax due by 31 July and 31 January may be too high as they are based on your taxable income for the previous tax year. You can apply to reduce the payments on account through your personal tax account or on your tax return. If you believe you have paid too much tax on account for 2022/23 submit your tax return as soon as you can to receive an early tax repayment.
Estimate your income for 2023/24 and if this is likely to be less than £60,000, ask HMRC to restart your child benefit payments.
Our next article: Savings and investment – making the most of your money
This information is provided by Taxbriefs on behalf of Thorntons Wealth. It is not guaranteed as to its accuracy, and is published solely for information purpose. It does not in any way constitute investment or tax advise Any information concerning the tax treatment of an investment is based on our understanding of current HMRC rules which may be subject to future change. Tax advice is not regulated by the Financial Conduct Authority.