Tax planning for April 2023

As we approach the end of this tax year is there anything you can do to help mitigate your tax liability?

Change the tax year in which you receive income  

The year in which you receive income can make a significant difference to how much tax you pay. If you are able to bring forward or delay an income receipt or an allowable expense this can have the effect of moving taxable income from one year to another.  Your own personal circumstances will determine when best to receive income as there are a number of factors which will affect the rate at which you pay tax. For example, the additional 45% tax rate threshold will reduce from £150,000 to £125,140 in 2023/24 so if your income is between those limits, bringing forward income into the 2022/23 year could give you a 5% tax saving.

Take steps to reduce your taxable income

Making pension contribution or gift aid donations will reduce your total taxable income.  This can be particularly tax efficient if your income is between £100,000 and £124,150 because the personal allowance is tapered away for income between those limits giving an effective tax rate of 60%.

Take dividends early

The dividend nil band is reducing from £2,000 in 2022/23 to £1,000 in 2023/24. If you haven’t already used up your dividend nil band consider taking further dividends now.

Have you used up your capital gains annual exemption

If you haven’t already use up your annual exemption consider realising further gains now. The annual exemption is reducing from £12,300 to £6,000 from 6 April 2023 and will further reduce to £3,000 from 6 April 2024.

If you have already made gains in excess of your annual exemption consider whether you are sitting on any losses which could be realised to offset your gains. Capital losses cannot be carried backwards so would need to be realised before 6 April 2023 to be usable in 2022/23

Inheritance tax planning 

Consider making use of IHT exemptions – the annual gift exemption of £3,000, the small gifts allowance of £250 per donee, and gifts made in consideration of marriage £5,000 to children, £2,500 to grandchildren, and £1,000 to anyone else.

Capital expenditure

Consider bringing forward capital expenditure to take advantage of the annual investment allowance up to a limit of £1million for 2022/23. Companies can still get the capital allowance super deduction of 130% for expenditure on plant and machinery up to 31 March 2023.