Tax-savvy strategies

The end of the current tax year and the start of the next is the ideal opportunity for partners to check in on their tax plan.

The complexity of your finances as a busy partner makes tax planning all the more important.

Why? Because whether you’re salaried or equity, tax will touch nearly every aspect of your financial life, and the decisions you make have the power to help you achieve your goals.

As the end of this tax year approaches, we look at a few of the steps you can take to make sure your money is working as hard as it can for you.

Check – and use – your allowances

The freezing of the personal allowance and Income Tax bands – and the reduction of the additional-rate threshold from 2023/24 – will increase the tax burden for a number of people.

Contributing to your pension is a highly tax-efficient way to mitigate some of the effects of the planned changes and the good news is that from the start of the new tax year the annual allowance for tax relieved pension contributions is rising from £40,000-£60,000 per annum.

It’s also worth noting that the pension lifetime allowance (i.e. the amount you could hold in your pension pot without receiving a tax penalty) will fall away in the new tax year and then from 6 April 2024, it will be completely abolished, so there will be no limit on how much you accumulate in your pension while still enjoying its tax advantages.

Optimise your investment income

For the 2023/24 tax year, the Dividend Tax allowance will be cut from £2,000 to £1,000, and then to £500 in 2024/25 – which makes it even more worth your while to ensure your dividends are in a tax-efficient wrapper.

“An SJP adviser can help solicitors structure their investment portfolio with regard to Dividend Tax,” says Barbara Gardener, TEP, Senior Consultant, Tax and Trusts, Technical Connection, at St. James’s Place. “And if you need investment income from other sources, they can work with you to figure out if you can do something about it, and then what you can do about it, based on your personal circumstances.”

Beware the 60% tax trap

New partners in particular should be aware of the 60% tax trap.

If you earn less than £100,000 per year, the first £12,570 of that is free of Income Tax for most people. However, if you earn £100,000 or more, your tax-free personal allowance is reduced by £1 for every £2 extra you earn. That means you could be taxed at an effective rate of 60% on your income between £100,000 and £125,140.

Being strategic here, for example through pension contributions, salary sacrifice, charitable donations or careful management of a bonus, can bring your taxable income down.

Mind the CGT changes

Given the imminent reduction in the annual Capital Gains Tax exemption, it’s worth looking at what you can do now in anticipation of the changes.

This tax year, if you dispose of assets, you can enjoy profit gains of up to £12,300 before you pay CGT. But this figure will be more than halved to £6,000 in 2023/24 and then reduced again to just £3,000 in 2024/25.

A financial adviser can help you create a multi-year plan to make full use of your allowance, as well as explore options such as transferring assets to your partner, gifting, or restructuring your investments – such as into an ISA – to reduce the CGT burden.

Work with a trusted adviser

Tax planning is one part – but an important part – of your overall financial plan.

“Navigating the myriad tax allowances and rules, especially as they shift and change, is something that SJP is all too familiar with,” Barbara concludes.

“We are here to offer advice and support, taking a big-picture view of all aspects of your finances and offering one-to-one, face-to-face guidance throughout your career and beyond.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time.

 

Kathryn Anderson is a former newspaper editor with nearly 20 years of experience in the media. Now a freelance writer and editor, she specialises in creating content around personal finance, investment and luxury lifestyle topics

 

 

St. James’s Place
1 Tetbury Rd
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01285 640302
www.sjp.co.uk