Last-minute checklist for your year end tax planning

1. If you have unused personal allowance, can you make a transfer to your spouse or civil partner?

If you have unused personal allowance, you may be able to transfer £1,260 of your unutilised personal allowance to your spouse or civil partner if certain conditions are met. This is known as marriage allowance and could save couples up to £252 in income tax in the tax year. You can backdate a claim for up to four years, so a claim made by 5 April 2024 can include 2019/20. However you should note that the receiving spouse must be a basic rate taxpayer – i.e can not have over £50,270 income.

2. Have you considered whether you could keep your personal allowance if you are a high earner?

The Personal Allowance is the amount of income you can receive without having to pay tax each year. In the 2023-24 tax year the Personal Allowance is £12,570. Where an individual’s adjusted net income is more than £100,000, the personal allowance is reduced. It falls by £1 for every £2 of income above that limit, and by the time income reaches £125,140 or more, all personal allowance is lost. However, timely planning can delay the point at which this happens or, in some cases, mean the allowance is kept in its entirety. For example, transferring some income where possible to a spouse if they earn less, making additional pension contributions or making payments under Gift Aid, can help preserve the personal allowance if you earn between £100,000 – £125,570.

3. Have you used your ISA allowance?

Don’t forget that you have a £20,000 ISA allowance. As part of this limit, it is also possible to invest up to £4,000 in a lifetime ISA which receives an annual government bonus of up to £1,000 per year. A Lifetime ISA (LISA) can be opened by anyone aged between 18 and 39. You can use it to save up to £4,000 a year, towards either a first home costing up to £250,000 (or £450,000 in London) or for retirement, and the state adds a bonus of up to £1,000 a year on top. Though you should note that any amount withdrawn from a Lifetime ISA that is not the result of a life event is subject to a 25% withdrawal charge. Investment providers will usually discuss your options in further detail when you start investing.

4. Have you maximised the tax relief from your pension contributions?

You can maximise the tax relief on your pension contributions by using all of your annual allowance. The annual allowance for 2023/24 is £60,000, but you can also use surplus allowance from the previous three tax years. To avoid an annual allowance tax charge, the pension contributions made by yourself, plus those made by your employer on your behalf, must be covered by your available annual allowance. Beware that your annual allowance may be restricted to a maximum of £10,000 if your total income plus pension contributions for the year exceeds £260,000, and your net income exceeds £200,000. Your annual allowance is also restricted if you have already drawn more than the tax-free amount from a money purchase pension scheme. Always take professional financial advice before making a significant investment as this is definitely a subject that requires involving us or an IFA to clarify.

5. Have you made IHT-free gifts out of your annual income?

Regular gifts out your net income are free of IHT provided the gifts don’t change your normal standard of living or reduce your capital assets. The amounts of the gifts and/or the recipients can be different each year.

In addition to regular gifts out of your net income, you can make IHT-free gifts of up to £3,000 each tax year, and gifts on marriage/civil partnership ranging from £1,000 to £5,000 (depending on your relationship to those who are marrying). If you miss making gifts totalling £3,000 in one year, you can catch up in the next tax year by giving a total of £6,000, but you can only carry forward the £3,000 allowance for one tax year.

6. Have you used your other tax-free allowances?

For 2023/24, savings income of up to £1,000 is tax exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers. The tax-free dividend allowance of £1,000 is available for all taxpayers. Married couples and civil partners can save tax by ensuring that each person has enough of the right type of income to make use of these tax-free allowances.

Also, if relevant, check you have used your Dividends Allowance. The Dividend Allowance will fall to £500 from 6 April 2024 but, until then, it is £1,000 for dividends paid before 6 April 2024 for the 2023/24 tax year.

7. Have you used your capital gains annual exemption?

If you have sold any item that has made a capital gain, for example land and property, shares and other investments, you can currently use the annual exemption to take up to £6,000 from 6 April 2023 free of tax. This will decrease to £3,000 in 2024/25, so aim to use your tax free allowance while it’s more generous. There are also a number of reliefs that can help to reduce your capital gains liability, such as business asset disposal relief and principal primary residence relief. You can also consider whether you can split gains with your spouse if the asset is in joint names before selling it, and if you have other assets that are sold at a capital loss, you can offset this against any gains in the tax year.

8. Have you claimed the working from home allowance?

Employees who are required to work from home may be able to claim tax relief of £6 a week from HMRC. Alternatively, employers can pay the allowance to employees tax free via payroll. But you should note that this cannot be claimed if you choose to work from home – for example, if your employer operates a hybrid working policy, it won’t be applicable.