Jeremy Hunt’s Budget on 17 November firmly reversed nearly all the measured announced by his predecessor, Kwasi Kwarteng, barely eight weeks previously.
Despite both Budgets being delivered by Conservative Chancellors and Tory backbenchers cheering them both on, they were two very different Budgets.
The direction of travel now seems clear – tax allowances are being cut or frozen and taxes rates are going up.
So what can you do?
Quite simply you must make the best use of all your tax allowances whilst they are still available.
Further tax allowance cuts and tax rate rises have to be expected. And if a Labour government is elected soon, I can definitely see this happening.
The Capital Gains Tax allowance is being halved in April 2023 to £6,000 and halved again in April 2024 to £3,000. This will result in an extra 235,000 people needing to file self-assessment tax returns.
The dividend allowance is also being halved in April 2023 to £1,000 and halved again in April 2024 to £500. (And to think this allowance was £5,000 in 2017-18…)
The 45% income tax threshold is being cut from £150,000 to £125,140, affecting around 250,000 people.
Other income tax thresholds for basic and higher rate tax will remain frozen until April 2028, which is simply a tax rise by another name after inflation.
The Inheritance Tax allowances are also being frozen until April 2028. They haven’t increased since April 2009…
Corporation Tax will rise to 25% from April 2023 as originally planned. Companies with profits below £50,000 will still pay 19% and the rate gradually increases to 25% on profits over £250,000.
🚀 Top Tips for income tax:
If your income is close to any of the thresholds at £12,570 (20% kicks in), £50,000 (loss of Child Benefit), £100,000 (loss of personal allowance), £125,140 (45% kicks in), look at pension contributions to bring your income below these limits.
As interest rates increase and more is earned from savings, hold the majority of your cash in the lower earning spouse’s name.
🚀 Top Tips for capital gains:
Where possible, use your CGT allowance by 5 April 2023 before the allowance is cut from £12,300 to £6,000.
🚀 Top Tips for Stocks & Shares ISAs:
Capital gains tax, income tax and dividend taxes are not incurred by ISAs. If you have any taxable investments, move what you can to a Stocks & Shares ISA. Make the most of your £20,000 annual allowance as I can easily see a Labour government halving this.
🚀 Top Tips for pensions:
Again, capital gains tax, income tax and dividend taxes are not incurred when accumulating pensions. Reducing the 45% threshold to £125,140 will result in more high earners benefitting from 45% tax relief and wage inflation could also mean pension contributions are an increasingly attractive option for those who are losing out on the personal allowance (from £100,000) or Child Benefit (from £50,000).
For most, a pension is still the most tax efficient investment you can make. Make the most of it while you can as I can easily see a future government reducing these advantages.
🚀 Top Tips for inheritance tax:
Estate planning using the various annual gifting allowances and trusts over a number of years is still the best strategy. This is not something that can be done quickly or easily, is complex and highly dependent on your own, unique circumstances.
Having a valid, up to date, IHT efficient Will is simply a no-brainer as a first step. Thereafter, careful planning is essential so please contact us to discuss this further.
🚀 Top Tips for business owners:
The advantage of basic salary + dividends + employer pension contributions is still the most efficient option, but it is getting close to being a borderline benefit. Speak to your accountant to double check this. Any more tweaks to the tax system and it might be more beneficial to pay yourself via PAYE ☹️
Optimise your income between spouses to make best use of all allowances.