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What tax-saving measures should you consider before the end of the 2023/24 tax year?

Wed, 24 Jan 2024 12:17:37 +0000

What tax-saving measures should you consider before the end of the 2023/24 tax year?

Every Financial Planner will know the old phrase “Don't let the tax tail wag the investment dog” and that is because it is as true today as it every was. Personal finance is more personal than finance, as such, it is essential to fit every investment into your own tailored financial plan. If you would like help creating your own financial plan, please use the link below to book an initial consultation.

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Let’s assume that you have your own financial plan in place, what tax savings should you consider before the end of the tax year? Optimising your portfolio for tax-efficiency can help you meet your goals, maximise your wealth and ensure your financial future.

When does the 2023/24 tax-year end?

The tax year ends every year on April 5th. Knowing your annual income allows you to understand your tax band and ensure you take advantage of potential reliefs or allowances. This is simple for the employed but requires some diligent planning on the part of the self-employed as your accounts do not need to be submitted until the following January. By this stage you may have missed out on valuable allowances.

What tax-allowances are available?

In this article, we will stick to the tax allowances that most investors can take advantage of. It is worth noting that there are other allowances for the more sophisticated investor. However, where appropriate, they would be raised with you personally during our review meetings.

Now most people can solve all their investing requirements in a nice and tax-efficient manner with a pension and an ISA. As such, let’s start with an old favourite, pensions. Everyone loves their pension, right? Regardless, your pension contributions should be a key consideration at the end of each tax year.

How much can you pay into a Pension in the 2023/24 tax year?

The annual pension contribution limit is now the lesser of your relevant earnings or an annual allowance of £60,000 gross, corresponding to a net payment of £48,000. Though there is the potential to increase this depending on your financial circumstances and previous years contributions. Best to get in touch if you want to discover more about that.

You can also make payments on behalf of your children and grandchildren regardless of their age. Their pension scheme can reclaim basic rate tax from HM Revenue & Customs (HMRC) and, if you are a higher rate tax payer, you’ll also receive additional tax relief. Not a bad way to kick start the future generations financial future.

Under the age of 75, even non-taxpayers can contribute up to £3,600 gross (£2,880 net) per year into a pension. No tax-relief is available for those over 75.

A quick nod to the high-earners, if your adjusted income exceeds £260,000, the annual allowance is progressively reduced by £1 for every £2 of income over this threshold, down to a minimum of £10,000 gross (£8,000 net) for those with an adjusted income above £360,000.
Reviewing your pension status and that of your family members is crucial for effective financial planning.

Next up is the are ISAs. If you have read this far, it might be worth noting that good financial planning should be a little dull at this stage.

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How much can you pay into a Individual Savings Account (ISA) in the 2023/24 tax year?

At the start of the tax year you received an ISA allowance of £20,000. You can contribute one or a combination of a Cash ISA, Stocks & Shares ISA, Lifetime ISA or Innovative Finance ISA. As such a married couple can save up to £40,000 away each year into this little darling of tax-efficiency.

In many ISAs you have the flexibility to withdraw money during the year and replace it before the end of the tax year without using up your annual allowance. The money receives no tax-relief as such, however, it grows free from capital gains tax and any income from the ISA is free from income tax.

Where you have shares and investments held outside an ISA wrapper, you may want to get advice on whether to bring them inside into the cosy warmth of tax-efficiency. However care must be taken as you may trigger a Capital Gains Tax charge.

Where you have exhausted this allowance, or simply wish to invest for your children instead, you could consider the JISA.

How much can you pay into a Junior ISA (JISA) in the 2023/24 tax year?

Junior ISAs are very similar to ISAs, aimed at the under 18s with an allowance of £9,000 per annum. A great way to create a nest egg for when they turn 18. Note that they will be in full control of the money at this point and free to spend it how they see fit. Oh, to be 18 again.

Now, if your children are over 18, you may wish to consider a Lifetime ISA.

How much can you pay into a Lifeime ISA (LISA) in the 2023/24 tax year?

From the age of 18 to 40, an investor can save up to £4,000 each year in a Lifetime ISA (LISA). The government will boost this saving feat with a 25% bonus, up to a maximum of £1,000 per year. Now, this money can be used as a deposit to purchase their first home or preparing for retirement from the age of 60.

Where the money is used for any other reason the 25% government top-up is lost. Now, onto some other allowances.

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How much can the marriage allowance save you in the 2023/24 tax year?

The marriage allows is available to married couples or registered civil partners where one partner is a basic rate taxpayer and the other’s annual income sits below the personal allowance threshold. The Marriage Allowance allows you to transfer up to £1,260, from the lower-income partner to the higher-income partner. This can save up to £252 in the current year.

You can consider Employee Tax Reliefs.

What are your Employee Tax Reliefs?

As part of your working life there are several l tax reliefs you may be eligible to claim, such as:

Tax-relief is for professional subscriptions - If you must maintain membership in a professional body as part of your job, you can claim tax relief on these fees.

Working from home allowance.

Tax-relief for business miles travelled in your personal vehicle.

Where you are self-employed, I’m sure your accountant makes sure you make the most of these. If you are employed and do not work with an accountant, it would be worth looking into these further.

Next up are Trading and Property Allowances.

What are your Trading and Property Allowances?

If you earn a small income from activities such as selling items on eBay/Amazon or hosting via AirBnB, there are allowances offers up to £1,000 of tax-free income.

There is also the Rent-a-Room relief. This applies where you rent out a portion of your home and allows you to receive up to £7,500 tax-free.

What if you have assets to sell that may incur CGT?

What are your Capital Gains Tax Allowances in the 2023/24 tax-year?

We are in a changing landscape for Capital Gains Tax (CGT). Last year your had a £12,000 allowance, this year it has been reduced to £6,000 and on the 5th April 2024, it will be reduce to £3,000. The lowest it has been since 1981. A fine year having brought this Financial Planner into the world.

Where you have assets you plan to sell in the coming year, it would be worth discussing with your Financial Planner and Accoountant if there are strategies that can be used to minimise your CGT tax bill.

Speaking of changes, what about your dividend allowance?

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What is your Dividend Allowance in the 2023/24 tax-year?

Right now, you can receive up to £1,000 per year tax-free, but this reduces to £500 per annum in the 2024/25 tax year. One to keep an eye on for company directors and/or if you are planning your tax-free income strategy.

What other Available Allowances are available in the 2023/24 tax-year?

You also have you Personal Savings Allowance (PSA). This allows you to earn tax-free income or growth of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Alas, the additional rate taxpayers, are not entitled to this allowance.

You may wish to consider gifts for Estate Planning.

How much can you gift for state planning in the 2023/24 tax-year?

As part of your estate planning strategy, you can make certain gifts exempt from Inheritance Tax. These immediately leave your estate upon making the gift. They include gifts presented to your spouse or registered civil partner, charities or political parties.

You may gift up to £250 to any number of recipients, provided it is the only tax-exempt gift they’ve received from you within this tax year.

You can give your child a wedding gift of up to £5,000, a grandchild up to £2,500, or up to £1,000 to any other happy recipient.

You are also allowed to gift £3,000 of cash or property to a single individual or divided among several recipients. If unused, you and also carry-forward last year’s exemption, effectively doubling the exemption to £6,000.

This was a whistle-stop tour of tax-planning strategies and if you have read this far, you should definitely get in touch via the button below. The tax-year is coming to a close in a couple of months and we’re here to help you make the most of your money.

The value of units can fall as well as rise, and you may not get back all of your original investment.

Do you even know the value of your pension?

Wed, 02 Jun 2021 14:14:00 +0000

Do you even know the value of your pension?

It amazes us when clients say that they do not know how much they have in their pension. You pay into your pension each month for years, and more often than not, unless your Financial Advisor forces you to review it, you never look at it. If you are employed, your employer pays into the pension as well. Pay into your pension throughout your working life, and it is liable to be worth more than your home.

Despite this, most people simply take the statements and stick them in a drawer to look at some other time.. probably.

The big question I want to ask you is simple: Do you know your pension value?

If we delve a little deeper, what do we mean by pension value?

We could mean the pounds and pence value on your pension statement. We could be referring to the projected value you will have when you get to retirement age. Could it be the value of your pension on death before or after retirement?

In reality, it is all of these and more. The value of your pension is entirely subjective. It depends on your circumstances and your goals for the future.

If you would like to build a proper financial plan, set out your goals for the future and understand the true pension value of your pension, get in touch through the contact us page.

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What is a good retirement income?

Mon, 17 May 2021 14:30:00 +0000

What is a good retirement income?

Let’s dig deeper into the question of what is a good level of retirement income? There is no doubt; the question is complicated as you may looking as much as 40 years into the future. Your goals will inevitably change throughout the years as your standard of living increases. We also know that life has a way of throwing spanners in the works. Unfortunately, we don’t know which spanners life will throw at us. But that is a question for another day.

For now, let’s focus on working out how much is enough for you to retire.

Where do I start?

Most people have no idea of how much they will need in retirement or where to start thinking about the question. Thankfully, there is some excellent research by Loughborough University and The Pensions and Lifetime Savings Association, published as the Retirement Living Standards. They have found that 77% of savers don’t know how much they will need in retirement, and only 16% of savers can give a figure. The scary figure is that more than half of people believe that the amount they save via the company auto-enrolment pension scheme is enough.

The standards they published are a fantastic starting point for discussions on how much of an annual income you need to financially independent or retire. I have found that this research has been a great help to most of my clients. The standards show what retirement life could look like at three different Retirement Income levels and breaks these down in detail.

For most of us, we will want to aim for at least the Comfortable Retirement Income in our early ‘active’ retirement years. If you are a high earner, you are liable to have loftier ambitions. As you age, lose mobility and enter into a more sedentary lifestyle, you may feel that a ‘Moderate Retirement Income’ may suffice. Regarding the ‘Minimum Retirement Income’, I do not think you would be reading this post if it satisfied your ambitions.

At From Acorns Financial Planning, we use the Retirement Living Standards as a starting point in our Cashflow Forecasting. We use Cashflow Forecasting software to model your entire financial future, running multiple scenarios. Cashflow Planning is an invaluable element of our service and helps you release if you are on track for your desired lifestyle.

If you would like answers to the questions, “What is a good retirement income?” then please contact us on 02886440475 or schedule an initial consultation here.

Retirement Living Standards. ‘Home - PLSA - Retirement Living Standards’. Accessed 3 May 2021. https://www.retirementlivingstandards.org.uk/.

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Should you buy commercial property through your pension?

Mon, 03 May 2021 14:30:00 +0000

Should you buy commercial property through your pension?

As a small business owner, you will almost certainly look to purchase your premises at some point. The most common route is through a commercial mortgage with a chunky deposit. However, there is another way. You can use your pension to buy commercial property, which your pension then leases back to your business. This option is available through either Self Invested Personal Pensions (SIPP) or a Small Self Administered Schemes (SSAS).

Here are my pros and cons of investing in commercial property through your pension.

Tax efficiency

Hold your commercial property in a pension is a highly tax-efficient investment. There is no tax payable on rental income paid from the business to the pension, and the rental continues to be a tax-deductible expense for the company. The rental payments do not form part of your pension contribution annual allowance. Once you hold the property in the pension, any future value growth occurs free from Capital Gains Tax (CGT). This means no CGT to pay if you decide to sell it in the future. Once owned by the pension scheme, the property sits outside of your estate for IHT calculations. For me, knowing that 100% of your business rent is funding your retirement plans is the cherry on top.

The ability to raise funds

Anyone who has tried to get commercial finance, especially in the North, knows it can be problematic and requires a significant deposit. When purchasing through your pension, you can raise up to 50% of net scheme assets. There are no restrictions regarding where your pension borrows from, only that this must be on commercial terms. As such, you can borrow the extra funds from a Business Angel, a friend or family member, even your own business.

Pooled Investments

You may not have enough in your pension to fund the purchase yourself. You can club together several pensions with the same provider, businesses and/or individuals to purchase your commercial property. This provides added buying power, for instance, a combination of 10 SIPPs, businesses or individuals with £100,000 each could buy a property for £1.5 million (£500,000 mortgage)

Future Development

The funds within the pension will build up over time from both contributions and ongoing rental and investment growth. The pension can pay any development and improvement works to the commercial property that is not specific to your business. It can even be registered for VAT to claim the VAT costs back.

Asset Protection

If you run your own business, you know the stress that it brings to the table. If your company gets into financial difficulties, your pension owned commercial property is ring-fenced from creditors in any future Bankruptcy proceedings. The pension is a separate legal entity, and as such, the liquidator cannot touch it, giving you an extra security layer.

There must be a catch

Of course, there are disadvantages to any and every investment. Here are a few of the main disadvantages of investing in commercial property through a pension:

As the SIPP will legally own the property, business owners can feel they have a lack of control
The property cannot be used as collateral for future loans to the company
As the company are will be the tenants, it will have to pay a market rent
The capital value of the property may fall
The SIPP will lack diversification if the property represents the main asset of the SIPP
Costs such as business rates, insuring and maintaining the property are incurred by the pension when the property is untenanted.
There are SIPP, legal and surveyor fees as well as taxes (LBTT) to pay to buy and sell the property

Whether to buy a commercial property through your SIPP or SSAS is a complicated decision. I would strongly recommend that you take advice from your Solicitor, Accountant and Financial Planner before moving forward.

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THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE COMMERCIAL MORTGAGES.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT PROVIDE OVERSIGHT OF TAXATION.

LEVELS AND BASIS OF TAXATION MAY CHANGE AND ARE DEPENDENT ON PERSONAL CIRCUMSTANCES.