Generally we place emphasis on the end of a tax year, highlighting the importance of using your full range of tax allowances and reliefs to the full before the next round of tax year changes come into play. That will always be true, but the beginning of the tax year is playing an increasingly key role as well.
Barely a month into 2023/24, and with the dust settled on Chancellor Jeremy Hunt’s first full Budget, the range of areas that may require some revision in strategy is wide. Top of the list for higher earners, and highlighted in the latest edition of our newsletter, is the surprise abolition of the pension lifetime allowance (LTA). While technically it was the tax charge on breaching the allowance threshold that was abolished on 6 April, the effective end of the cap is intended to encourage those higher earning professionals to remain in employment for longer. Additional changes were made to two other key allowances – the annual and money purchase thresholds – which both rose. However, the end of the LTA raises some additional questions, not least around inheritance tax.
While pension thresholds have risen, the personal allowance remains frozen and those for dividends and capital gains have reduced. At the same time corporation tax rates have increased. For small company owner/directors who have drawn salary as dividends, the changes may mean that the tax advantage of paying dividends out of company profits above £50,000 will largely disappear. A review of your strategy early in the tax year may be crucial.
Capital gains is the other area to see dramatic change, with the annual exempt allowance falling by around half in 2023/24 to £6,000 from £12,300. Next year this will half again. The removal of index-linking means that £3,000 level will remain for individuals. As these levels drop, so the amounts you may need to report on your tax return will rise.
The earlier you start to take these developments into account in your tax and business planning, the better placed you are likely to be across the year to track the impact and ensure you take the right advice at the right time.
For updates on these issues and more, please see our latest newsletter. We will continue to monitor developments to help you and your business through these still turbulent times.