KEY GUIDE | Month 20XX | Folio Title Folio Title Folio Title Folio Title 5 SPECIAL REPORT | December 2023 | Year End Financial Plann ng ● Most gains above the exempt amount are taxed at 10% where taxable gains and taxable income are less than the UK basic rate limit of £37,700 in 2023/24. ● The rate is 20% on most gains that exceed this limit. ● Residential property gains that are not eligible for private residence disposal are taxed at 18% and 28%. You should generally aim to use your annual exempt amount by making disposals before 6 April 2024. If you have already made gains of more than £6,000 in this tax year, you might be able to dispose of loss-making investments to create a tax loss. This could reduce the net gains to the annual exempt amount. Timing disposals If your disposals so far this tax year have resulted in a net loss, the decision on whether to dispose of investments to realise gains before the tax year end will hinge on the amounts involved. Depending on your level of income, timing your disposals either before or after the end of the tax year could result in more of your gains being taxed at 10% rather than 20% (or at 18% instead of 28%). Transferring income producing investments between married couples or civil partners can also mean more gains being taxed at the lower rates of CGT. Transferring assets between married couples or civil partners before disposal might save CGT, particularly where one partner has an unused annual exempt amount, has not fully used their basic rate tax band or has capital losses available. You should generally leave as much time as possible between the transfer and the disposal. If shares or assets have become virtually worthless, you could claim the loss against your capital gains without actually disposing of the asset by making a negligible value claim. From 6 April 2024, the basis period reforms will mean that the business profits of the self-employed are assessed and taxed in the tax year in which they arise. These changes affect those who do not already use an accounting period (AP) end date between 31 March and 5 April. For them, 2023/24 is a transitional year, where taxable profits are split into two parts: ● The standard part: taxable profit for the AP ending in 2023/24. ● The transitional part: taxable profit between the end of the AP in 2023/24 and 5 April 2024. Any unused overlap relief is deducted from transitional profit. The transitional profit is then automatically spread over the five tax years 2023/24 to 2027/28, unless the taxpayer requests otherwise. Transitional profits are not included in the calculation for the High Income Child Benefit charge, nor for calculating income for tapering the pension annual allowance. They are, however, used in calculating the withdrawal of the personal allowance where income (less certain deductions) is more than £100,000. If this looks like it could be an issue for you in the next four tax years, you could be better off taking your transitional profits sooner rather than later. If you intend to stop trading or incorporate on or before 5 April 2024, you should be aware that any overlap relief brought forward will be deducted from the final year’s profits and there will be no spreading of the transitional part. Useful link: www.gov.uk/business – helpful advice for businesses. https://www.gov.uk/government/publications/basis-periodreform/basis-period-reform – basis period reform. GET AHEAD ON CAPITAL GAINS TAX PLANNING With the CGT annual exempt amount due to fall by half in 2024/25, managing your capital gains liabilities to maximise this reducing allowance should be a priority. Everyone has a CGT annual exempt amount, which in 2023/24 makes the first £6,000 of gains free of tax. For 2024/25 this figure falls to £3,000 and is frozen thereafter. Credit: Unitone Vector\shutterstock.com Planning point For example, if you expect to move into a higher tax band in any of the following four tax years (i.e. 2024/25–2027/28), you may wish to bring some or all of the transitional profits into an earlier tax year so they are charged at, say, the basic rather than the higher rate or at the higher rate rather than the additional (top) rate.
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