Tax planning in 2024

The most significant announcement for individuals was the reduction of the main rate of National Insurance Contributions (NICs) from 12% to 10% from 6 January 2024 on any earnings between £12,570 and £50,270. This reduction is expected to benefit both employees and employers, as it will increase take-home pay for workers and reduce labour costs for businesses. Practically, this means that any individuals earning in excess of £50,270 per annum will see their take home pay increase by £754 per year (or just shy of £63 per month).

National Insurance paid by self-employed individuals, including partners in a partnership, will also be reformed. Class 2 contributions (currently £3.45 per week) will be abolished altogether, and Class 4 contributions will decrease by 1 percent to 8 percent from 6 April 2024.

Whilst not strictly ‘a change’ – the Autumn Statement provided welcome confirmation that the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) will be extended and will continue to be available until April 5, 2035. These schemes provide tax relief (including income tax relief of up to 30% of the qualifying investment amount) to investors who invest in small and medium-sized businesses. The extension of these schemes is expected to encourage investment in earlier-stage fast-growth businesses, with the aim of stimulating economic growth.

The limits for Individual Savings Accounts (ISAs) will remain the same for the 2023-24 tax year. However, there will be some changes to the rules governing ISAs. These have not been outlined in detail but should provide added flexibility for usage.

Similar reforms will also be implemented for pensions, including making it easier for multiple occupational pensions to be merged into one pension.

If you’re required to submit a tax return, then failing to get it in by 31 January will see you landed with an initial £100 late-filing penalty.

If the return is more than 3 months late, then additional daily penalties kick in, and you’ll be charged £10 per day for a maximum of 90 days. If this extends to six months, then an additional ‘tax-geared’ penalty will arise (which will be the higher of £300 or 5% of the tax due), a further £300 or 5% of the tax due (whichever is higher) will be applied if the return is more than 12 months late.

If you file a tax return, then you’ll also have to pay your tax liability by 31 January (and may also be required to make ‘payments on account’ of your tax liability by 31 July). And like failing to file your return on time, failing to pay your tax liability by the relevant due date will also carry penalties… so maybe set yourself a calendar reminder now!

Late payment penalties for income tax are as follows:

It’s important to make sure your return is accurate and complete, and that you have reported all your income and gains to HMRC – whether that’s your earnings from employment, investment income from a buy-to-let portfolio, bank interest, or capital gains and dividends on an investment portfolio, it’s important that your tax return is complete to avoid the risk of penalties for errors.

And, for most UK tax-resident individuals (the exception being non-UK domiciled individuals claiming the remittance basis), tax is payable on overseas income and gains – and so it’s important any foreign income is reported to HMRC too.

But your tax return doesn’t need to be all doom and gloom. In fact, it’s estimated one in six people actually overpay tax to HMRC – and so claiming all your allowable expenses and the reliefs to which you are entitled should be a key part of your tax return.

One of the most overlooked areas is where individuals top up their pension and fail to claim the tax relief to which they are entitled. Indeed, PensionBee estimate that some 4.5m taxpayers are failing to claim the relief to which they are entitled on their pension top-ups, which is estimated to be worth over £750m per annum. This equates to approximately 80% of higher-rate and 54% of additional rate taxpayers who are eligible to claim relief through their self-assessment tax returns but have failed to do so.

Another common area that is left forgotten is tax relief on charitable donations. According to research published by HMRC in 2018, 25% of donations eligible for Gift Aid were not claimed, equating to up to £560m of potential missed tax relief.

And that last section brings us to one of the biggest challenges individuals face with self-assessment – and that is one of record-keeping. A third of people report looking for their receipts and records as the most onerous and time-consuming aspect of completing their tax returns.

But as we’ve seen, failing to do so, could leave people failing to claim the reliefs to which they are entitled and paying more tax than they owe… so perhaps a new year resolution for some could be to maintain better tax records, to make next year’s tax return, just that little bit easier!

One key consideration should be making the best possible use of the allowance and lower rate tax bands available to you. A key point to consider is whether your personal allowance may be ‘abated’ (reduced) if your income is over £100,000. This can result in an effective rate of tax of 60%, or in some cases considerably higher still in extreme circumstances6 for those claiming tax-free childcare or 30 free hours of childcare, but can potentially be managed through pension contributions and charitable donations in some cases.

Couples who are married or in a civil partnership might also want to consider transferring investment assets between themselves to ensure they’re held by the individual who pays the lower rates of tax.

It’s also a good time to think about making any charitable donations which you’ve been considering.

The annual exempt amount for Capital Gains Tax (CGT) is currently £6,000, but is set to reduce to £3,000 from 6 April 2024. So making use of this allowance whilst it’s available should be a key consideration at this time of year.

Depending on their personal circumstances, individuals could consider realising gains to utilise the annual exempt amount or delay disposals until the next tax year.

Couples may want to consider transferring assets to their spouse/civil partner to utilise their annual exempt amount or lower tax bands.

Finally, whilst there are complex rules which prevent you selling shares and immediately buying them back for tax reasons, but in right circumstances, individuals may want to consider selling shares and reacquiring them via a SIPP or ISA to utilise their annual exempt amount but still retain the shares.

The countdown to the 5 April is the perfect time to ensure you’re making best use of your investment allowances. Actions to consider could include maximising the use of your pension annual allowance (generally £60,000 but this is an area with lots of complex rules) and ISA investment limits (£20,000 for adults).

Parents and grandparents may want to consider making provisions for children or grandchildren. As an alternative to cash gifting, contributions can be made on behalf of minor children to Junior ISAs of up to £9,000 per annum or cash contributions to a junior pension of £2,880 (which is ‘grossed up’ to £3,600 by the pension provider, by claiming basic rate tax relief back from the government).

Aside from these exemptions, there are various inheritance tax gift exemptions to consider including the £3,000 annual exemption (which applies in total to all gifts made) and the small gifts exemption of £250 (which applies on a ‘per recipient’ basis). Individuals looking to make longer-term provision for family members, may also want to take the opportunity to consider establishing a habit of making ‘regular gifts out of income.