It’s a new year, so if you want to make fresh changes in your life, now’s a great time to think about your personal tax planning strategies. Here’s what you should be thinking about for a tax-efficient 2024.
Capital gains tax
In the 2023/24 tax year, everybody has a capital gains tax (CGT) allowance of £6,000, which means that if you sell or dispose of an asset or property, then the first £6,000 of the ‘profit’ you made won’t be taxed. If you made a loss, you can carry it forward to offset future gains.
However, from April 2024, this allowance will reduce to £3,000. Therefore, if you’ve been thinking of selling an asset, you may want to bring forward the sale to benefit from the larger tax-free allowance.
You cannot carry your £6,000 allowance over either, so once the tax year is over, your current allowance is gone.
Inheritance tax and gifts
It’s never too early to begin thinking about inheritance tax planning. There are several allowances and strategies that you can use to reduce the amount of tax on your estate. Start now, and you’ll be able to protect your assets and pass them on to the next generation.
Each individual has a basic tax-free allowance of £325,000 on their estate, which means you won’t need to pay inheritance tax on anything under this amount.
There is also no inheritance tax charge if you leave your estate to a spouse or civil partner, and a further £175,000 allowance also applies if you pass your home onto your children or grandchildren.
If one partner passes away without using their full tax-free allowance, the remaining allowance will pass to their surviving spouse. That means that married couples who leave their home to the next generation can enjoy a combined tax-free allowance of up to £1 million.
Other allowances include:
- an annual gifting allowance of up to £3,000
- as many small gifts as you want (worth no more than £250 each)
- wedding gifts worth up to £5,000 for your children, £2,500 for your grandchild, and £1,000 for anyone else.
Maximise your ISA allowance
ISAs are an efficient way to save money, as you don’t have to pay income tax or CGT when you withdraw money from your account.
Every person above the age of 18 can put £20,000 into an ISA, regardless of income, so make sure you’ve used as much of your and your spouse or partner’s allowance as you can.
Junior ISAs allow you to save up to £9,000 a year on behalf of one of your children. You can choose between a cash ISA and a stocks-and-shares ISA, the latter providing exposure to the stock market and the chance for longer-term investment.
Pension contributions
Pension contributions are an effective planning tool and a major tax consideration at the end of the year. So long as you don’t contribute more than your ‘relevant earnings’, you can put a maximum of £60,000 into your pension pot each year and receive tax relief at your marginal rate. While you’re allowed to contribute more than this, you won’t get tax relief on the excess.
The savings on offer aren’t something to dismiss. If you’re a high earner, you are eligible to get up to 40% or 45% tax relief on your pension contributions. Ensuring that you claim this relief in your self-assessment return is therefore essential for your long-term financial well-being.
Trusts
A trust can make it easier to pass on your assets in a tax-efficient way, as the funds you place within it will cease to be part of your estate for inheritance tax calculations.
However, setting up a trust correctly can be complicated and may have wider tax implications. It’s also important to weigh up the benefits of different trust types. As a result, you should always seek professional advice on trusts before using one as part of your personal tax strategy.
Speak with a tax adviser
While we’ve covered some of the most common personal tax planning strategies in this article, there are countless other ways to minimise your tax bill in 2024. The best approach will depend on your unique circumstances and goals.
So, if you want to learn some tax planning strategies that are specific to you, speak with a tax adviser. An expert can tell you everything you need to know and help you develop a cost-cutting plan that protects your financial future.
Talk to us about your personal tax plan in 2024.