With the end of the 2023/2024 tax year fast approaching (5th April 2024), we thought we would put together some of our top tips to help you with your tax planning.
What is tax planning?
Tax planning is the process of analysing your personal and business’ financial situation to reduce your tax responsibility. It involves understanding your income, expenses, investments and deductions to take advantage of any tax reducing schemes offered by the government.
By strategically timing income and expenses, contributing to retirement accounts, and making tax-deductible charitable donations, you can legally minimise the amount of taxes you owe and bring home more of your hard earned income.
Utilising allowances and reliefs
HMRC offer a range of allowances and reliefs that can reduce your taxable income.
- Personal allowance: This is the amount you can earn each year before income tax applies. For the 2023/2024 tax year, most people have a personal allowance of £12,570.
- Marriage allowance: If you’re married or in a civil partnership and your partner earns less than the personal allowance, they can transfer up to 10% of their allowance to you.
- Dividend allowance: If you received dividends, you get an extra £1000 tax free allowance for the 2023/2024 tax year, on top of your personal allowance.
Pension Contributions
Pension contributions offer a great way to save for your retirement years while also reducing your end of year tax bill. If you are a high rate tax payer, you can increase your high rate tax band if you make pension contributions into a personal pension plan. There are limits as to how much you can put in to a pension without incurring additional tax charges.
Charity Contributions
If you are a high or additional rate tax payer and make gift aid payments to charities, you can get an uplift in your high rate tax band, which means you pay high rate tax on less of your income.
Avoid hitting critical income thresholds
- £50,000 – This is the level at which the High Income Child Benefit charge applies so that Child Benefit becomes repayable. It is repayable in full once income reaches £60,000. This is changing in the next tax year.
- £50,270 – At this level of income the higher rate of tax kicks in: earnings and other income are taxed at 40%, dividends are taxed at 33.75% and the tax-free interest allowance drops to £500.
- £100,000 – At this level of income the personal allowance starts to be withdrawn. It is withdrawn in full once income reaches £125,140.
- £150,000 – At this level of income the top rate of tax kicks in: earnings and other income are taxed as 45%, dividends are taxed at 39.35% and the tax-free interest allowance is withdrawn.
There are many different ways to reduce your tax responsibilities and many depends on your individual circumstances.
If you need more bespoke help or guidance with tax planning for this tax year or future tax years, please get in touch with Turas Accountants. Our team of experts are dedicated to saving you money by applying all the tax saving schemes we know of to reduce your tax responsibility.