Read about tax changes due after 5th April 2023
Howard Goodship, CFA Ringwood - End of tax year investment planning
Monday 9 January, 2023
Tax changes for 2023
The end of the current tax year is April 5th 2023. There are some tax changes coming up in 2023 which mean more consideration is needed in advance. Generally, tax reliefs are being reduced and tax rates increased.
1-Individual Savings Accounts (ISAs):
There are no changes to the £20,000 allowance per adult (plus £9,000 for Junior ISAs). However, for the past 14 years interest has been negligible on cash. That has now changed with rising interest rates and it’s possible to earn over 2% on accessible cash and 4% on 1- and 2-year cash bonds. Using your annual ISA allowance for either Cash ISAs or Stocks and Shares ISAs has become more important as any interest, dividends or capital gains are exempt from tax within an ISA.
2-Capital Gains Tax:
The annual personal exemption is reducing from £12,300 to £6,000 in April 2023 and then again to £3,000 in April 2024. The Trust exemption is a maximum of 50% of these so also reduces accordingly. Utilising annual exemptions can be important to reduce potential future tax charges. It may also be worth reviewing investment portfolios and crystallising losses in certain scenarios.
3-Pension Contributions:
Making personal pension contributions can be very tax efficient. You obtain tax relief on the contribution at your marginal tax rate. In addition, contributions can reduce your taxable income and can affect other allowances such as Child Benefit and your personal tax free allowance.
One of the criteria to receive Child Benefit without clawback as a result of the Child Benefit Tax Charge is that you or your partner’s adjusted net income isn’t above £50,000 per annum. If exceeded, a High-Income Tax Charge is applied, meaning that Child Benefit is fully clawed back once income reaches £60,000.
The personal tax-free allowance of £12,570 is tapered if adjusted net income exceeds £100,000. The effective tax rate between £100,000 and £125,140 is 60%!
Additional rate tax of 45% will be applied to earnings above £125,140 after April 5th 2023 (currently £150,000).
Pension contributions reduce your adjusted net income so can be a powerful tool in reducing the tax you pay. The annual pension allowance for total pension funding is £40,000 although it is possible to go back 3 tax years and “carry-forward” unused allowances, subject to certain criteria. Personal tax-relievable contributions are limited to 100% of earnings or £3,600 per annum if more.
Finally, it is possible to make a pension contribution on behalf of another individual and the tax benefit will apply to that individual personally. So, for example a retired parent who is a basic rate taxpayer could make a pension contribution for a working adult child who is a higher or additional rate taxpayer and the parent would make the payment net of basic rate tax relief and the adult child would receive any higher/additional tax relief, claiming this from HMRC.
4-Corporation Tax:
If you own a limited company corporation tax rates are increasing from April 1st, 2023. You should seek advice from your accountant regarding the effect this may have on your business and any required planning.
In Summary...
As you can see, it is important to keep up to date on tax changes and how they may impact your planning. In addition, it has been a challenging year for many investors so reviewing your investment portfolios to ensure they are suitably diversified and well-positioned for the future will be important as the economic cycle changes. Our independent financial advisers also offer investment planning, pension planning, retirement advice or inheritance tax planning advice.
Local financial advice from your Lonsdale Wealth Management independent finanical adviser
If you want independent financial advice on your available tax allowances contact your local Lonsdale financial adviser in Ringwood, St Albans, Barnet, Ware, Stafford, Leeds / Bradford, Chippenham, Wimbledon, and Harpenden. Alternatively, complete our booking consultation form. Our independent financial advisers offer a free initial financial consultation to discuss your finances.
Local independent financial advice for Hampshire and Dorset clients
This article is part of the ‘understanding investment’ series written by independent financial adviser Howard Goodship. Howard and Stewart Sims-Handcock meet local Hampshire and Dorset clients, including residents of Verwood, Ferndown, and West Moors at their central Ringwood office or a client's home. Call the Ringwood financial planning team on 01425 208490 for a free initial, no obligation chat.
For more information read:
Simon Hawker, IFA - Lonsdale voted in the top 100 Financial Advisers in the UK
Howard Goodship, IFA - Mitigating Inheritance tax at the right time
Sustainable investing - Our views on the E, the S and the G
Neil Homer, IFA Stafford - When should you pay for independent finanical advice
Lonsdale Services prioritises your data
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The contents of this article are for information purposes only and do not constitute individual advice. The Financial Conduct Authority do not regulate cash flow planning, tax planning, or estate planning.
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