Haines & Company

February 2024 Tax News

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February 1, 2024

YEAR END TAX PLANNING

It’s not too late to undertake some end of year tax planning. If you have some spare cash, an obvious tax planning point would be to maximise your ISA allowances for the 2023/24 tax year (currently £20,000 each). You might also want to consider increasing your pension savings before 5 April 2024.

USE A LIFETIME ISA (LISA) TO SAVE FOR YOUR FIRST HOME

Those aged between 18 and 40 can set up a Lifetime ISA (Individual Savings Account) to buy their first home or save for later life. You can put in up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.  Note that the Lifetime ISA limit of £4,000 counts towards your £20,000 annual ISA limit. You can withdraw money from your ISA if you’re: - buying your first home, - aged 60 or over, or - terminally ill, with less than 12 months to live. However, you’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (an unauthorised withdrawal). This recovers the government bonus you received on your original savings.

PENSION PLANNING

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. Additional pension contributions can be even more effective if your income is between £100,000 and £125,140 as the gross pension contribution reduces net income for the purposes of the reduction in the personal allowance. Note that for every £2 of income in excess of £100,000, the £12,570 personal allowance is reduced by £1, with reduction to nil where net income is £125,140 or more. This is effectively a 60% tax saving.

CAPITAL GAINS TAX PLANNING

You might wish to consider bringing forward capital gains to before 6 April 2024 where you haven’t used your £6,000 CGT annual exemption. This exempt amount reduces to just £3,000 for gains made in 2024/25.

Diary of Tax Main event

1 February
Corporation tax for year to 30/4/2023 unless quarterly instalments apply.
19 February
PAYE & NIC deductions, and CIS return and tax, for month to 5/2/24 (due 22/2 if you pay electronically).
29 February
5% penalty imposed on 2022/23 income tax, CGT, class 2 and 4 NIC still unpaid at this date unless a payment plan has been agreed with HMRC