TAX: AHEAD OF THE GAME

The Buy to Let Preferred Tax advisors Astonia Associates consider a client’s full tax picture when advising them and that includes property investments. Prior to the end of the tax year (April 5th for most) MD Paul Weller has a few tips to consider

Now that New Year’s resolutions are out of the way - well done you if you’re still doing the couch to 5K! - it’s a good time to start planning your tax affairs before the end of the tax year. An obvious tax planning point would be to maximise your ISA allowances for the 2022/23 tax year, currently £20,000 each. Here are a few other quick tips:

Pondering Pensions

You might want to consider increasing your pension savings before April 5th as the unused annual pension allowance from 2019/20 lapses after three years.

For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and by their employer. Under the current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension the government tops this up to £5,000. If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000. This can be even more effective if your income is between £100,000 and £125,140 where the effective tax rate is 60%. Remember that pension fund investments can go down as well as up.

Annual Cgt Allowance

The Capital Gains Tax annual exempt amount reduces from £12,300 to just £6,000 for gains made in 2023/24. Remember that the 2022/23 allowance is lost if not used by April 5th and you might want to consider bringing forward disposals of chargeable assets where possible. Where a married couple who are higher rate taxpayers own a buy-to-let property, bringing forward the disposal from 2023/24 could potentially save £3,528 CGT (£24,600 - £12,000 @28%). It would be important to exchange contracts before April 6th, 2023 as that is the critical date for CGT.

KNOW YOUR ABCS (SHARES)

A common issue with new clients that we engage with and relevant to investors with limited companies: the company has been set up with ordinary A shares and it may now be appropriate to restructure the company with A and B shares which allow different dividends to be paid to the different classes of shareholders.

Paul Weller - Astonia Associates

This can allow a partner with a lower tax position to take higher dividends rather than some dividends falling into a higher tax bracket with the other partner.

Different classes of Alphabet Shares can also allow children to be become shareholders and can be tax efficient for financing higher education – subject to certain rules and conditions.

Aia Here To Stay

The £1 Million Annual Investment Allowance (AIA) is now permanent. The 130% super-deduction referred to below only applies to limited companies, however the Annual Investment Allowance (AIA) is available to unincorporated businesses as well as limited companies.

In the recent Autumn Statement the Chancellor announced that the AIA for expenditure on plant and machinery would become a permanent £1 million allowance.

The annual limit was originally scheduled to revert to just £200,000 from January 1st, 2021 and has been extended twice to March 31st, 2023. Businesses will welcome the certainty that this provides.