BLOG

How to Plan for Your Year-End Taxes

April brings around many exciting things for the year – Easter bank holidays, the start of Spring, and (for some) April Fools Day.

Unfortunately, it isn’t just a time for celebration but also the marking of the new tax year, and we all know what that means – your year-end tax return.

Although no one looks forward to planning and paying their taxes, it doesn’t have to be arduous.

Making the most of the remaining days until 5 April can help you plan strategically and (hopefully!) lower your tax bill.

If you’re unsure of the best place to start, here’s a handy guide on planning for your year-end taxes.

Dividends

As a company director, you’ll be able to find tax-efficient ways of lowering your income tax bill.

Dividends are taxed more favourably than regular income (over a certain threshold), so you might consider combining your salary and dividends.

The current dividend allowance is set at £2,000 until 5 April 2023 but will decrease to £1,000 once the new tax year rolls around.

Many directors opt for paying themselves a salary under the annual personal allowance of £12,570 and making up the rest with dividends.

Tax on dividends over the £2,000 allowance is:

  • 8.75% for basic rate income taxpayers
  • 33.75% for higher-rate taxpayers
  • 39.35% for additional rate taxpayers.

Pay into an ISA

As accountants, we always tell our clients to save as much as possible. So, if you can do this tax-free, why not jump at the opportunity?

Each year you can pay £20,000 into an ISA – no matter if it’s a cash ISA, a stocks and shares ISA or even a combination of the two. For 2023/24, the amount will remain the same, but if you don’t use your 2022/23 allowance by 5 April 2023, you’ll lose it.

Your total ISA allowance falls outside of the scope of both income tax and capital gains tax, so make this a priority for each tax year.

The marriage allowance

Between you and your spouse or civil partner, you’ll have an annual allowance of £1,260, which can be transferred between the two of you if either you or your partner has an income below the personal allowance.

In practice, this can help reduce your partner’s tax bill by up to £252 a year for the coming tax year.

Inheritance tax planning

Throughout your tax year, you can take advantage of several inheritance tax-free reliefs.

You can gift up to £3,000 tax-free to your children or grandchildren annually.

You can also give small gifts of £250 per person as often as you like throughout the year.

Not only will this help your family in the short term, but it can also help you reduce your inheritance tax bill.

Once you die, your estate can be charged 40% in inheritance tax for anything over the value of £325,000. This could be from property or wealth alone (or even a combined value).

Friendly advice

The tax year-end doesn’t have to be a cause of concern. With careful planning, you can potentially minimise the impact of any outstanding taxes on your income, helping you set a strong foundation for the year ahead.

We help countless taxpayers with their year-end tax planning, so we’d be happy to help you too.

Get in touch to discuss your year-end tax planning.

Contact us

See how we can help further your financial journey today