Year-end tax planning for individuals

We outline the actions that individuals can take before the end of the UK tax year to ensure they are making the most of the available allowances and reliefs open to them.

Private individuals

Self-assessment key dates

Failure to notify chargeability to tax, to file your tax return and pay any tax due on time, or to file a correct return, may result in penalties.

31 January 2023

Filing deadline for 2021-22 electronic returns and certain claims and elections. A £100 penalty will arise if your return is not filed by 31 January, regardless of whether any tax is due.

A £100 penalty per partner applies for a late partnership return.

Paper returns for 2021-22 not filed by this date will be three months late and may attract a daily penalty of £10 a day for up to 90 days going forward.

The balance of your 2021-22 tax liability, together with the first payment on account for 2022-23, is due.

3 March 2023

The first automatic 5% late payment penalty will apply to any outstanding 2021-22 tax.

5 April 2023

The four-year time limit for certain claims and elections in respect of the 2018-19 tax year expires.

30 April 2023

Paper returns for 2021-22 not received by this date will now be six months late and a further penalty may be charged of 5% of any tax due, or £300 if greater.

Electronic returns for 2021-22 not filed by this date will be three months late and exposed to daily penalties of £10 a day for up to 90 days, to a maximum total of £900.

31 July 2023

Due date for the second payment on account for 2022-23.

Electronic returns for 2021-22 not filed by this date will now be six months late and a further penalty may be charged of 5% of the tax due, or £300 if greater.

1 August 2023

The second automatic 5% late payment penalty will apply to any outstanding 2021-22 tax.

5 October 2023

Deadline to notify HM Revenue & Customs (HMRC) of your chargeability to tax if you have not been issued with a return (or a notice to file a return) and you have an income tax or CGT liability for 2022-23.

31 October 2023

Deadline for submitting 2022-23 paper returns, unless there is no facility available from HMRC to file an electronic tax return, in which case the deadline for a paper return is 31 January 2024. For paper returns filed by this date, HMRC should be able to:

• Calculate your tax for you;
• Tell you what you owe by 31 January 2024; and
• Collect tax through your tax code where you owe less than £3,000.

If your paper return is submitted after this date (and is not subject to the extended deadline above) you will be charged an automatic £100 penalty.

Paper returns for 2021-22 not submitted by this date will now be 12 months late and subject to a further penalty of 5% of the tax due, or £300 if greater.

30 December 2023

Deadline for online filing for 2022-23 if you want HMRC to collect tax through your tax code (you must owe less than £3,000).

31 January 2024

Filing deadline for 2022-23 electronic returns. Payment date for balancing tax payment in respect of 2022-23 and first payment on account for 2023-24.

1 February 2024

The third automatic 5% late payment penalty will apply to any outstanding 2021-22 tax.

Income tax planning

Income tax rates remain unchanged in 2022-23 for those living in England and Northern Ireland. The devolved Welsh rates of income tax have been set at a level that means Welsh taxpayers will pay the same tax rate as taxpayers in England and Northern Ireland.

Scotland has different tax rates and bands for non-savings and non-dividend income. For Scottish taxpayers, this may mean they now pay a higher amount of tax than an English or Welsh taxpayer in a similar situation, depending on the type of income they receive.
2022-23 rates and thresholds are shown in the table below.

Allowances for individuals:

• Personal allowance of £12,570: this is progressively withdrawn for individuals earning more than £100,000, leading to a marginal rate of 60% on income between £100,000 and £125,140. Non-domiciled individuals claiming the remittance basis are not entitled to a personal allowance.
• Personal savings allowance: the first £1,000 (basic rate taxpayers)/£500 (higher rate taxpayers)/£0 (additional rate taxpayers) of savings income is taxed at 0%.
• Dividend allowance: the first £2,000 of dividend income is taxed at 0%.

Although no tax is due on income within the personal savings allowance or dividend allowance, it is taken into account when calculating an individual’s marginal rates of tax on any taxable savings and dividend income.

Top tips

• If possible, consider bringing forward the payment of income ahead of 6 April 2023, before the reduction in the additional rate threshold and the dividend allowance (see below).
• Consider taking action to reduce taxable income, particularly where income falls just above one of the thresholds. There are various options to achieve this, including pension contributions, Gift Aid donations or investments in a Venture Capital Scheme.
• If you have children, it may be possible to switch income from one spouse to the other, so that both spouses’ incomes remain below the £50,000 threshold for the High Income Child Benefit Charge.

Looking forward

The income tax personal allowance and higher rate threshold will remain frozen for English and Northern Irish taxpayers at £12,570 and £50,270. The additional rate threshold will be reduced from £150,000 to £125,140 from 6 April 2023, which will result in taxpayers with income above £150,000 paying an additional £1,243 of income tax. The Welsh government has set its tax rates and thresholds for 2023-24 on a level matching those in England and Northern Ireland.

The Scottish income tax higher rate and top rate will increase to 42% and 47% in 2023-24. The additional rate threshold will be reduced to £125,140 in line with the rest of the UK, while the other thresholds will remain frozen at their 2022-23 levels.

The dividend allowance will decrease from £2,000 to £1,000 from 6 April 2023, with a further reduction to £500 planned from 6 April 2024.

The temporary 1.25% increase in National Insurance rates, introduced from 6 April 2022 ahead of the planned introduction of the Health and Social Care Levy (HSCL) has now been reversed with effect from 6 November 2022, as the HSCL has now been abolished. More details are available here.

Gift Aid

This is a valuable relief for gifts to charities: the gift is made out of the donor’s taxed income and the charity benefits by claiming basic rate tax on the value of the gift. Higher rate taxpayers can claim extra tax relief of 20% and additional rate taxpayers 25% of the gross value of the gift. There is no cap on the amount that can qualify for Gift Aid relief, provided the donor has paid sufficient tax during the tax year to cover the charity’s reclaim from HMRC.

For example, if you are a higher rate taxpayer and you make an £80 donation to a charity, the gross value of the gift to the charity is £100, since it can claim back the basic rate tax of £20. You can claim an additional 20% tax relief on the gross value, reducing the net cost to £60.

In order for a donation to qualify for tax relief, the charity must be located in an EU member state (plus Iceland, Norway and Liechtenstein) and must be recognised as a qualifying charity by HMRC.

Top tips

• You must provide the charity with a Gift Aid declaration, so that both parties can claim the relevant tax relief.
• You can elect for donations made in one tax year to be treated for tax purposes as made in the prior year. This would be of benefit, for example, if you are a higher or additional rate taxpayer in 2022-23 but not in 2023-24. In other cases, it will merely accelerate the higher/additional rate relief. The election can only be made when submitting your tax return, which must be filed on time.
• Donating assets (eg shares, land and property) to charity can also attract tax relief. Additionally, any gain arising on the donation of such assets is exempt from CGT, and the gift itself is not subject to inheritance tax (IHT) – potentially making an asset donation more tax-efficient for the donor.
• If you are a non-domiciled remittance basis taxpayer, you can make a charitable donation from untaxed foreign income, either to a qualifying overseas charity or to the non-UK bank account of a UK charity, and qualify for Gift Aid relief against your UK taxable income. Professional advice should be sought, as this is a complex area.

Capital gains tax planning

The annual exemption remains at £12,300 for 2022-23. Gains above this level are taxed as follows:

• 10% if the gains qualify for Business Asset Disposal Relief (BADR) (previously Entrepreneurs’ Relief), up to a lifetime limit of £1 million;
• 10% if the gains qualify for Investors’ Relief, up to a lifetime limit of £10 million;
• 10% (18% for gains in respect of residential property or private equity carried interest) if the gains fall within the unused basic rate band; and
• 20% (28% on residential property or private equity carried interest) for gains above the basic rate band.

Assets transferred between married couples or civil partners do not normally give rise to a CGT charge.

Non-residents are not generally subject to UK CGT. There is an exception to this rule, however, for disposals of UK immoveable property, and certain indirect interests in UK immoveable property.

Non-domiciled individuals claiming the remittance basis of taxation should take professional advice, as the rules relating to remitted capital gains are complex. The annual exemption will not be available and it may not be possible to claim relief for overseas capital losses.

Top tips

• The annual exemption cannot be carried forward or transferred, so where possible aim to make disposals before 6 April 2023 to utilise this year’s exemption – particularly as the amount of the exemption will decrease from this date (see below for more details).
• Consider transferring assets to your spouse or civil partner, to utilise their annual exemption or capital losses. Such transfers must be made outright and without preconditions to be effective for tax purposes.
• The timing of a disposal may affect the amount of CGT payable. For example, if you are a basic rate taxpayer in 2022-23 but expect to be a higher rate taxpayer in 2023-24, realising a disposal in 2021-22 so that some or all of the resulting gain falls within the basic rate band will reduce the amount of CGT payable (albeit with a one-year acceleration of the tax).

Looking forward

The annual exempt amount for CGT will decrease from £12,300 to £6,000 from 6 April 2023, with a further reduction to £3,000 from 6 April 2024.

Inheritance tax planning

Individuals who are domiciled (or deemed domiciled) in the UK are subject to IHT on their worldwide assets. Non-domiciled individuals (non-doms) are normally subject to IHT on their UK assets only.

An individual is deemed UK domiciled once UK resident for at least 15 of the immediately preceding 20 tax years. Non-doms born in the UK with a UK domicile of origin will, however, generally be deemed domiciled from the date at which they become UK resident, although there is a limited grace period for IHT purposes only.

IHT is payable at 40% where a person’s assets on death, together with any gifts made during the seven preceding years, total more than the nil rate band (NRB). The NRB is £325,000 for 2022-23 and is fixed at this level until April 2028.

The NRB can be transferred to a spouse or civil partner, so couples can enjoy a combined NRB of up to £650,000 on the second death. The amount transferable is the percentage of the deceased’s unused NRB at the time of their death, as applied to the NRB in force at the date of the second death.

An additional NRB is available in respect of a property that at some point has been the deceased’s main residence and which is passed on death to a direct descendant. For 2022-23, the additional NRB is £175,000 and is fixed at this level until April 2028. If unused, this relief will also be transferable to the deceased’s spouse or civil partner. The relief will be tapered where estates are over £2 million in size.

Estates over £2.35 million receive no benefit from the additional nil rate band.

Top tips

• Consider gifting assets during your lifetime to minimise the IHT payable on your death. Such gifts will fall outside the IHT net after seven years, provided you do not reserve a benefit in the asset transferred. By making a gift now, you can start the seven year IHT ‘clock’, and after three years the amount of IHT potentially payable on the gift is tapered. The gifting of assets can give rise to CGT and may impact upon your lifestyle, so professional advice should always be obtained.
• If you have income surplus to your normal living expenses, consider making use of the IHT exemption for gifts out of surplus income. Such gifts are tax-free, even where death occurs within seven years. Appropriate documentation should be retained to show that the gift is regular and made from income not required by the donor to cover their living expenses.
• Make use of other IHT reliefs and exemptions, such as the annual gifts exemption of £3,000 (£6,000 if no gifts were made during 2021-22), the small gifts allowance of £250 per donee, and gifts made in consideration of marriage (£5,000 to children, £2,500 to grandchildren, and £1,000 to anyone else).
• Consider taking out life insurance written under trust to fund any contingent exposure to IHT.
• Consider increasing bequests to charities to 10% or more of your net estate, which will mean that a reduced IHT rate of 36% applies to the remainder of your estate. A carefully drafted will is essential to ensure that the desired result is achieved.

Looking forward

The nil rate band and residential nil rate band will remain fixed at their present levels until April 2028.

Pensions

Contributions to pension funds within the annual allowance and the overall lifetime limit of £1,073,100 attract relief at your marginal rate of tax. The combination of tax relief on contributions, tax-free growth within the fund, and the ability to take a tax-free lump sum on retirement makes a pension plan an attractive savings vehicle. Saving for retirement should always be considered as part of the year end tax planning process.

This is particularly important for those with an annual adjusted income in excess of £240,000, since the annual pension contributions limit of £40,000 is tapered by £1 for every £2 of income in excess of £240,000, reducing to a limit of £4,000 for those with income over £312,000. No tax relief is available for contributions in excess of the available annual allowance.

The annual allowance can be carried forward for three tax years. Any unused annual allowance for the three previous years can be added to your allowance for 2022-23 and will attract full relief (subject to the level of pensionable income).

If you are approaching retirement and are considering drawing benefits, take advice to ensure that you understand the tax implications of accessing your pension fund. The National Minimum Pension Age (NMPA) is currently 55 – those aged 55 or over can access their pension fund flexibly, with no restrictions on the amount they can withdraw. They can draw down the entire pension fund if they choose, although there are tax consequences.

Top tips

• Pensions scams are becoming more common and can result in the loss of all or part of your pension pot, a penalty tax charge from HMRC, or both. Before committing to any changes to your pension fund, it is vital to take proper advice.
• Consider making additional contributions to your pension scheme before the end of the tax year to obtain relief at 40% or 45%, depending on whether you are a higher rate or additional rate taxpayer, taking care not to breach your available annual allowance or the lifetime allowance. Contributions may be of particular benefit where your income is just above one of the income tax thresholds, or between £100,000 and £125,140 (tax relief is available at 60% on income falling within this bracket).
• Review the availability of any unused allowance for the 2019-20 tax year, as this will expire on 5 April 2023.
• Consider making contributions of up to £3,600 to a pension scheme for a spouse, civil partner or child if they have no earnings of their own, to obtain basic rate tax relief on the contributions. For example, if you contribute £2,880, HMRC will pay in £720, giving a gross contribution of £3,600.
• If you make pension contributions after flexibly accessing your pension savings, you have a reduced annual allowance of £4,000. Make sure that you keep contributions below this level to avoid a charge.
• If you have sufficient income, consider not drawing your pension and treating it instead as an IHT wrapper.

You may also be interested in:

• Year-end tax planning for business owners.
• Year-end tax planning for employers and employees.
• Year-end tax planning for property owners.
• Year-end tax planning for overseas individuals.
• Year-end tax planning and tax efficient investments.
• Year-end tax planning and going digital.

This article is published on a general basis for information only and no liability is accepted for errors of fact or opinion it may contain. Professional advice should always be obtained before applying the information to particular circumstances. Tax law is subject to change. This publication represents our understanding of the law and HM Revenue & Customs’ practice as at 1 February 2023. The FCA does not regulate tax advice.