3 IMPORTANT FACTORS TO CONSIDER NOW TO MAKE THE MOST OF 2023/24

We’re now well into the new tax year and after a turbulent 2022 for the UK economy, further tax allowance and threshold changes are due to affect UK taxpayers this year. As we all head into 2023/24, keep reading for some important tips on how to manage your finances, and how Future Planning can help you to secure a stable financial future now.

1. FACTOR IN THE SPRING BUDGET’S CONTINUED TAX FREEZES
Jeremy Hunt used his spring Budget to maintain current stealth taxes – in the form of numerous allowance freezes – as well as lowering the additional-rate threshold. 

The Personal Allowance is the amount you can earn before you pay basic rate Income Tax and it has been frozen for 2023/24 at £12,570. The higher-rate threshold has also been frozen, meaning you will become a higher-rate taxpayer once your earnings exceed £50,270. 

These freezes will see your Income Tax bill rise as your wages increase and according to a recent FTAdviser report, the number of people paying 40% could almost double by 2027.

Meanwhile, the news is also bad for higher earners. A drop in the additional-rate threshold means you’ll now pay 45% on income above £125,140. It is, though, worth noting that the Personal Allowance reduces by £1 for every £2 of “adjusted net income” above £100,000, meaning you’ll pay an effective tax rate of 60% on earnings of between £100,000 and £125,140.

The IHT nil-rate and residence nil-rate bands remain frozen, potentially increasing your IHT liability over the next few years, while cuts to the Capital Gains Tax (CGT) and Dividend Allowances could all alter your tax-efficient plans this year. 

Be sure to speak to us before you make any financial decisions.

2. A SHOCK PENSION ANNOUNCEMENT COULD ALTER YOUR 2023/24 PLANS
The chancellor used his spring Budget to abolish the Lifetime Allowance (LTA) – the limit on the amount you can withdraw from the pensions you hold in your lifetime without becoming liable for an additional LTA charge.

The limit had stood at £1,073,100 and while it remains in force (officially, at least) until 2024, the charges have been dropped from 6 April 2023.

Jeremy Hunt also opted to increase the Annual Allowance. This is the amount of pension contributions you can make each year, while still receiving tax relief. It had stood at £40,000 but is now £60,000 for the 2023/24 tax year.

You can now make £20,000 more in tax-efficient pension savings than you could last year (in most cases), which could greatly affect your plans for this year.

3. CONSIDER THE BENEFITS OF BEING AN ISA EARLY BIRD AND UNDERSTANDING YOUR PENSION ALLOWANCES
The ISA Allowance

While the ISA Allowance remains at £20,000 for the 2023/24 tax year, it is worth considering the benefits of maxing out your allowance early in the tax year, if you can afford to. These include:

More money in your fund earlier in the tax year and a longer period for potential investment growth
Longer for compounding to take effect and on a larger fund.
Remember that if a large one-off sum isn’t affordable, setting up a regular saver early in the new tax year allows you to take advantage of pound cost averaging. If you’d like to speak to us about maximising the tax efficiency of your ISA investments, get in touch.

The increased Annual Allowance

As mentioned above, the Annual Allowance has increased to £60,000 for the 2023/24 tax year. This allows you to increase the tax-efficient pension savings you can make, but to make the most of the new limit, you’ll need to start planning early. 

Also, be aware that the Annual Allowance might not apply to you. If you have taken some of your pension benefits flexibly, the Money Purchase Annual Allowance (MPAA) might apply. Previously, triggering the MPAA decreased your allowance to just £4,000. This has increased to £10,000 from 6 April 2023. 

The Tapered Annual Allowance (TAA), which applies to high earners, has also seen a change for this tax year. The adjusted income threshold has increased from £240,000 to £260,000. The taper now decreases your allowance to a minimum of £10,000 instead of the previous £4,000.

Speak to us if the MPAA or TAA applies to you.

GET IN TOUCH
The UK economy will remain volatile in 2023/24 with several high-profile changes likely to affect your plans. Thankfully, Future Planning is on hand to help.

If you would like to discuss any element of your financial plans during this tax year and beyond, please email [email protected] or call 01793 575553.

PLEASE NOTE
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. You could lose your investment. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Find out more about Future Planning HERE!