Year-end tax planning
As the 2023/24 tax year draws to a close, clients need to undertake a review of their tax affairs and consider whether any action is needed before 5 April 2024 to mitigate their tax liabilities and ensure that any allowances are not wasted. A few areas to consider will be noted in this article.
Personal allowances
The personal allowance for the next tax year is set to be £12,570. It must be used in the tax year it relates to, so is unable to be carried over if unused.
If a client hasn’t utilized their personal allowance for the tax year 2023/24, it’s advisable to explore options to maximize its usage. For instance, this could involve increasing their income for the year, such as by issuing a salary or dividends from a personal or family-owned company. Alternatively, if the client cannot fully utilize their allowance and their spouse or civil partner falls within the basic tax rate, they might consider claiming the marriage allowance. This would allow the client to transfer £1,260 of their personal allowance to their spouse or civil partner, potentially resulting in tax savings of up to £252 for the couple in the tax year 2023/24.
Dividends
For individuals who own personal and family businesses, distributing dividends can serve as a tax-efficient method to withdraw company earnings for personal purposes.
Every taxpayer is entitled to a dividend allowance, regardless of their income tax rate. For the tax year 2023/24, this allowance stands at £1000, but it is slated to decrease to £500 for 2024/25. While the dividend allowance remains applicable and the company retains sufficient profits, it is advisable to issue dividends to utilize this allowance (alongside any unused personal allowance) before the tax year concludes. In cases involving family businesses where family members are also shareholders, it’s prudent to consider distributing dividends to them to make use of their available dividend and personal allowances. It’s important to note that in cases where an alphabet share structure is not employed, dividends must be distributed proportionally according to shareholdings.
