TAX PLANNING TIPS | May 2023 6 not live there during that final period. You might not be able to nominate a property that is situated overseas. Let out your drive or garage for tax-free cash The property income allowance allows you to receive up to £1,000 income tax free from property that doesn’t qualify for rent-a-room relief (see above). This could be from letting out spare space in your garage – or even your drive – for commuter parking. If the gross income before deduction of expenses is no more than £1,000 you don’t have to report the income on your tax return. If the rent received is more than £1,000, you can deduct the higher of £1,000 or the actual expenses incurred, paying tax on the net amount. Check how many days your holiday accommodation is actually let for To qualify for a range of tax reliefs, each of your commercially let furnished holiday properties needs to be let for at least 105 days during the tax year and be available for short-term letting for at least 210 days. If you don't meet the minimum period of occupancy condition for 2023/24, a period of grace election will deem the test to be met if you met the threshold either in 2022/23 or in 2021/22. Where you let more than one UK holiday property, you can average the number of days of actual letting across all your UK properties. Retirement planning – preparing for the future Maximise tax relief on your pension contributions by using all of your annual allowance The annual allowance for 2023/24 is £60,000, but you can also use surplus allowance from the previous three tax years (see below). To avoid an annual allowance tax charge, the pension contributions made by yourself, plus those made by your employer on your behalf, must be covered by your available annual allowance. Beware that your annual allowance may be restricted to a maximum of £10,000 if your total income plus pension contributions for the year exceeds £260,000, and your net income exceeds £200,000. Your annual allowance is also restricted if you have already drawn more than the taxfree amount from a money purchase pension scheme. Always take professional financial advice before making a significant investment. Take advantage of your unused annual pension allowances from earlier years You can bring forward unused pension allowances of up to £40,000 from each of the three previous tax years, to boost your allowance for the current year (2023/24). This allows you to pay pension contributions over the current year’s annual allowance – in theory up to £180,000 – and still enjoy full tax relief on those contributions at your marginal tax rate. However, the total tax relievable pension contributions are also limited by your taxable earnings for the year. The calculations can be complex, so it is best to do your pension planning well before the end of the tax year. EXAMPLE Jane earns £100,000 per year and is opted into her workplace pension scheme. The pension contributions made by Jane and her employer amount to £8,000 per year (Jane contributing £3,000, and her employer £5,000), and this has been the case for the past three years. During May 2023, Jane won £100,000 on the premium bonds and wishes to maximise her pension contributions for 2023/24. Jane’s financial adviser calculates that Jane has unused annual allowances of £148,000 in 2022/23 being £32,000 (£40,000 – £8,000) from each of the years: 2020/21 to 2022/23 and £52,000 for 2023/24. Jane can pay up to £97,000 (£100,000 – £3,000) in additional pension contributions for 2023/24 as her total contributions are limited by her total earnings. Tip Furnished holiday accommodation can be registered as a business so it qualifies for small business rates relief, if the property is let on a commercial basis for short-term lets for at least 70 days in the year.
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