Year-end housekeeping for
5 April 2024

Introduction

With the end of the current tax year (5 April 2024) fast approaching, we have outlined below some of the main things that individuals, entrepreneurs and their families should look at ahead of the tax year end, to ensure that their personal tax affairs are in good order and all available tax allowances and exemptions are utilised.

Income tax and National Insurance

In 2023/24 individuals with total income in excess of £125,140 pay the additional rate of income tax, currently 45% on most income, (47% in Scotland), although certain individuals with income between £100,000 and £125,140 are subject to an effective 60% tax rate (63% in Scotland) owing to the tapered removal of the personal allowance. Some options for consideration are outlined below; please contact us if you require assistance in this area.

Transferring assets to spouse or civil partner

If your spouse or civil partner has insufficient income to utilise their personal allowance (£12,570 for 2023/24) or their nil, basic or higher rate tax bands, it may be sensible for you to gift sufficient income-producing assets to them to enable them to do so. 

Calculating the effect of the transfer of income-producing assets can be complex, due to the interaction of the savings rate of tax, the savings and dividend nil rate bands and the withdrawal of the personal allowance from those with income of over £100,000. Furthermore, different tax rates apply to non-savings, non-dividend income of Scottish resident taxpayers, which would also need to be taken into account if relevant. The wider implications of making gifts to your spouse or civil partner must also be considered.

Preserving your personal allowance

Where your income is between £100,000 and £125,140 (for 2023/24), your personal allowance is phased out, resulting in an effective rate of tax of up to 60% (63% for Scottish residents) within this income bracket. Taxable income can be reduced through pension contributions (subject to restrictions set out later in this note) and charitable donations. The wider implications of making such contributions and donations should be considered.

Charitable donations

Tax relief is available for cash gifts to UK registered charities. In limited circumstances Gift Aid is available on gifts to certain charitable organisations in the EU, Norway, Iceland and Liechtenstein where gifts are made by 5 April 2024, although non-UK charitable organisations have to satisfy certain conditions. 

If a 45% taxpayer makes a cash donation to a charity of £20,000 under the ‘Gift Aid’ scheme, the charity may reclaim £5,000 from HM Revenue & Customs (HMRC) and the donor will obtain tax relief of £6,250 via their tax return. The overall effect is that the charity receives a £25,000 donation at a net cost to the donor of £13,750. 

Tax relief may be available for certain charitable donations not made in cash form, but you should review this with your usual Deloitte contact to ensure that any tax relief is claimed appropriately.

Are your investments held in a sensible structure?

You need to think about the effect of corporation, income and Capital Gains Tax (CGT) rates on the way you own investments: 

• The main rate of corporation tax rate is currently 25%. Smaller companies may be taxed at a lower effective rate of between 19% and 25%.

• The additional rate of income tax is 45% for most income (47% in Scotland), and 39.35% for dividends after the £1,000 dividend nil rate band (2023/24). The dividend nil rate band is due to halve to £500 on 6 April 2024. In 2024/25 changes will be made to the Scottish rate of income tax. These changes are the introduction of a new 45% income tax rate for incomes between £75,000 and £125,140 and an increase in the rate of tax for incomes above £125,140 to 48%. 

• The top rate of CGT, after the annual exemption of £6,000 for 2023/24, is 20% on gains made on disposal of most assets, and 28% on residential property and carried interest gains. The annual exemption is due to reduce to £3,000 for the 2024/25 tax year. Anti-avoidance rules may apply in some circumstances that can result in an income tax charge arising instead of CGT, notably including distributions are received on the winding up of a close company where the shareholder is in some way involved in the same or a similar trade or activity following the liquidation. 

With this in mind, you should review how your investments are currently structured, taking into account the overall net effective rates of tax on investment returns, now and in the future.

When choosing the right investment vehicle, there are numerous tax and wider considerations to consider. Similar issues apply in respect of any income received from self-employment. The most appropriate vehicle will be largely driven by your circumstances and intentions, and so the position should be reviewed with your usual Deloitte contact. 

Basis period reform

From 2024/25, the “current year basis” for taxation of trading profits will be replaced with the “tax year basis”, with transitional rules applying in 2023/24. Under the “current year basis” profits for income tax purposes are normally based on the accounting period ending in the tax year. The “tax year basis” requires time-apportionments of profits of accounting periods that fall wholly or partly in the tax year. Those who already draw their accounts to 5 April or 31 March, and intend to continue doing so, will generally not be affected by the reforms. Others will need to consider the effects of the transitional rules and the possible cash flow implications and administrative burdens of the reforms. In some cases, it may be appropriate for accounting dates to be aligned to the tax year in the future. The position should be reviewed with your usual Deloitte contact at the earliest opportunity.

Pensions 

Fully utilising annual pension contributions

The amount of tax-deductible pension savings that can be made for each individual is limited to the “annual allowance”. The standard annual allowance increased from £40,000 to £60,000 from 6 April 2023. The allowance is reduced by £1 for every additional £2 of income above £260,000 in 2023/24 (£240,000 for 2020/21 to 2022/23), subject to a minimum allowance of £10,000 in 2023/24 (£4,000 for 2020/21 to 2022/23). Income for this purpose is taxable income plus most pension savings by the individual and/or their employer.

Where pension savings for the last three years have been lower than the annual allowance for the relevant year, there may be scope for catching up on pension savings in the current year. For example in 2023/24 unused allowances from 2020/21 onwards could be used. The allowances will be available if the individual was a member of a UK registered scheme in the relevant tax year (this may in some circumstances be extended to membership of overseas pension schemes). In some cases, contributions of up to £180,000 could attract tax relief in 2023/24, but the rules surrounding this are complex. You should review the position with your usual Deloitte contact and take financial advice from a FCA regulated pensions adviser before making any contributions. A separate briefing note is available on request.

Lifetime allowance protections

In addition to the complexities surrounding pension contributions, the “lifetime allowance” will need to be considered. The standard lifetime allowance is currently £1,073,100. The lifetime allowance is expected to be abolished from 6 April 2024, but new allowances are to be introduced that are based on the level of the lifetime allowance. For example, the 25% tax-free lump sum (‘pension commencement lump sum’) is normally capped at 25% of the lifetime allowance (i.e., typically £268,275). From 6 April 2024, there is expected to be a new standard ‘lump sum allowance’ of £268,275, but the amount may be higher if certain lifetime allowance protections are in place (e.g., if the individual currently has a protected lifetime allowance of £1,250,000 under Fixed Protection 2016, their lump sum allowance should be £312,500). Applications for Fixed Protection 2016 and Individual Protection 2016, as well as certain other lifetime allowance enhancements, are due to close by 5 April 2025. Further transitional measures may also need to be considered, particularly for those who expect to take pension benefits under both the old and new regimes.

Capital Gains Tax (CGT)

Claiming tax relief for capital losses

Capital losses must be claimed within four years of the end of the tax year in which the loss is realised. For example capital losses realised in 2019/20 must be claimed by 5 April 2024. This would generally be done as part of your tax return, but it is important to consider whether or not you may have losses to claim that have not been claimed previously (this could be particularly relevant to non-UK domiciled individuals, as set out in the ‘Non-UK domiciled individuals’ section below). In addition, it may be possible to claim a capital loss if you hold assets or investments which have fallen in value and are now worthless, or if you have previously made loans to a trading company (or other trader) which have become irrecoverable. For loans made before 24 January 2019, relief on irrecoverable loans is only available if the borrower is UK resident. 

Where a capital loss relates to shares in an unquoted trading company, it may be possible to offset the loss against income which would otherwise be subject to income tax at up to 45% (or 47% for Scottish residents). The loss that can be offset in this way is typically capped at the higher of £50,000 or 25% adjusted total income. 

The conditions to claim a loss and the claim itself can be complicated and so you should discuss this with your usual Deloitte contact. 

Business Asset Disposal Relief (BADR) 

The CGT rate for higher and additional rate taxpayers is 20% for gains made on disposal of assets other than residential property and carried interest where the rate is 28%. However, a 10% CGT rate can apply to qualifying capital gains, up to a lifetime limit, if BADR (previously called entrepreneurs’ relief) is available. The lifetime limit has been £1million since 11 March 2020. The maximum tax saving is therefore normally £100,000.

If you expect to sell a business asset or shares or loan notes in a trading company, you should review your personal tax position as soon as possible to determine whether BADR, and therefore the 10% CGT rate is available. In order to claim BADR on shares a number of conditions need to be met (very broadly you must have at least a 5% holding of the ordinary share capital in a trading company and hold an employment or office in the company) for a period of at least 24 months leading up to a disposal. BADR can also apply to sales of unincorporated trading businesses and furnished holiday lets. The detailed conditions are complex and should be reviewed carefully. 

Investors’ relief

Similarly to BADR, investors’ relief results in a 10% CGT rate. Relief is available on up to £10 million of qualifying gains over an individual’s lifetime. Individuals who subscribed for ordinary shares in an unlisted trading company, in cash, on or after 17 March 2016 may be eligible to claim investors’ relief on disposals where shares have been held for at least three years. It is important to be aware of the conditions and the holding period so that relief can be claimed on disposals where appropriate. Very broadly, newly issued ordinary shares in unquoted trading companies must be held and the individual must not be an employee or paid director, although again the detailed conditions are complex and should be reviewed carefully. 

Use your CGT annual exemption

In 2023/24 each UK individual has an annual exemption of £6,000. If it is not used, it cannot be carried forward and is lost. If the annual exemption has not been used, consideration could be given to selling assets to realise gains if this is consistent with your overall investment strategy. However, anti-avoidance rules mean that if shares and securities are sold and repurchased on the same day, or within the following 30 days, the disposal will be matched with the later acquisition when calculating the gain.

As noted above, the CGT annual exemption will reduce to £3,000 in 2024/25. 

Gift to spouse or civil partner prior to a disposal

Assets can usually be transferred between spouses and civil partners without a tax charge arising on the transfer. If an asset standing at a gain is transferred to a spouse before disposal, the gain on disposal may be covered by their CGT annual exemption, their capital losses (if any), and/or attract a 10% or 18% CGT rate, instead of 20% or 28%, depending on their income level and the nature of the asset. In order for this to be effective, any gift of assets must be absolute and unconditional. If the transfer is from a UK domiciled individual to their non-UK domiciled spouse or civil partner, it should be borne in mind that the inheritance tax spouse exemption in such circumstances is capped, and so the gift may be a potentially exempt transfer for inheritance tax purposes.

Main residence relief 

Normally where a property is used as the owner’s only or main residence throughout the ownership period, any gain on disposal is exempt from CGT. Married couples and civil partners can only have one main residence between them. If more than one property is used as a residence by an individual or couple, it is possible to elect which one should be treated as the main residence for CGT purposes. 

UK resident individuals must make the election within two years of the residences available to an individual changing (e.g. within two years of a new property being acquired). Individuals who are non-UK resident at the point of disposal of the residence can make a main residence election at the point of disposal, though it is often advisable for non-UK residents to make a main residence election within the usual two-year time limit in case their circumstances change and they become UK resident at the point of disposal, in which case it would be too late to make a main residence election. 

It should be noted that rental properties on which a capital gain is unlikely to arise may constitute a “residence” for the tenant. This should be borne in mind when considering whether or not a main residence election is appropriate. 

Since 6 April 2015 additional rules have applied if the property is located in a different jurisdiction from the one in which the taxpayer resides. Broadly, taxpayers must occupy the elected property as a residence for at least 90 days in the tax year in order for it to qualify for relief in respect of that year. These rules are complex and those in this situation should take professional advice at the earliest opportunity. 

UK residential property disposals – standalone tax return requirement

UK residents who realise a taxable gain on disposal of UK residential property are generally required to file a standalone CGT return and make a payment on account of the CGT due within 60 days of completion. The payment on account will normally be the full expected CGT liability but may exceed it in some cases as only losses incurred up to the date of disposal of the property can be offset against the gain arising when the standalone return is filed. 

Losses incurred after the date of completion must be ignored in determining the CGT payment on account, even if they will ultimately be offset on the self-assessment tax return for the tax year of disposal. Any excess CGT will generally be repayable when the self-assessment tax return is filed. Interest and penalties may apply if returns are not submitted and/or insufficient payments are made. A separate briefing note is available at https://deloi.tt/CGT2020.

Non-Resident Capital Gains Tax (NRCGT)

Any gains realised by non-UK resident individuals and trustees who dispose of UK residential and/or non-residential property (including that held indirectly) are within the scope of CGT (non-resident companies are within the corporation tax regime). Rebasing to 5 April 2015 or 2019 values (depending on the type of property being disposed of) may apply. Each disposal must be reported on a standalone CGT return within 60 days of the date of completion, irrespective of whether there is a taxable gain, subject to some very limited exceptions. Any CGT due will normally need to be paid within the same 60-day period. 

Using other current year exemptions and allowances 

The main exemptions and allowances not already mentioned in this briefing note are:

Inheritance Tax annual exemption of £3,000 per annum

This is the amount individuals can give away each tax year without any inheritance tax implications. If all or part of the previous tax year’s (2022/23) £3,000 annual exemption was unused the remainder can be carried forward. This means that up to £6,000 can be given away tax-free in 2023/24. Other reliefs and exemptions may also be relevant.

Stakeholder pensions of £3,600 per annum (gross)

Any UK resident individual under the age of 75 can contribute up to £2,880 (net) into a stakeholder pension each year, irrespective of their earnings or whether or not they are employed, so these pensions can be funded for non-working spouses and children. The pension provider will reclaim 20% tax relief direct from HMRC, so the policy will be credited with a gross contribution of £3,600. It is important to note that the funds will not be accessible until the minimum pension age. This is currently 55. The government have however confirmed that they intend to increase the minimum pension age to 57 in 2028. 

Individual Savings Accounts (ISAs) 

The annual overall subscription limit for an ISA for 2023/24 remains at £20,000, which can be invested in cash, UK stocks and shares, foreign shares, corporate bonds and other permitted investments. ISAs are available to UK resident individuals aged 18 or over (age 16 or over for cash ISAs for subscriptions before 6 April 2024). The investment return from ISAs is free from income tax and CGT.

Other types of ISA exist, including the Innovative Finance ISA, and the Lifetime ISA. The annual investment limit applies across all ISAs in total. It is important to be aware of the conditions and features of the various ISAs before investing to ensure that the appropriate ISA vehicle is used for your specific circumstances. A comparison with saving into a pension is also important. Regulated financial advice may be required.

Junior ISAs

Junior ISAs are available to children under the age of 18 who are UK resident and who do not have a child trust fund. The annual subscription limit in 2023/24 is £9,000, which can be split between stocks and shares and/or cash. The funds are locked in until the child is 18, when the account will default to a normal ISA if the funds are not withdrawn. Ordinarily, when a parent gives money to a child, if the income arising from the gift exceeds £100, the whole of the income is taxable on the parent (while the child is under 18). This provision does not apply to a Junior ISA.

Tax efficient investments

Numerous statutorily provided tax efficient investments are available, including National Savings (www.nsandi.com), the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs).

EIS, SEIS and VCT investments all have annual limits, as follows:

• EIS - £1,000,000 with income tax relief of 30%, or up to £2,000,000 provided the additional £1,000,000 is invested in ‘knowledge-intensive’ companies.

• SEIS - £200,000 with income tax relief of 50%. 

• VCT - £200,000 with income tax relief of 30%.

Any gains realised on disposal of EIS, SEIS or VCT shares may be exempt from CGT. In addition, gains made on disposal of other assets may be deferred if EIS investments are made, or partially exempted if SEIS investments are made.  

The EIS, SEIS and VCT tax rules are complicated and it is important to take professional advice. Regulated financial advice may also be required.

Non-UK domiciled individuals

Deemed UK Domicile (DD)

Certain individuals who are legally non-UK domiciled are deemed to be UK domiciled (DD) for income tax, CGT and Inheritance Tax (IHT) purposes. The effect of this is that the remittance basis of taxation is normally unavailable, and the individual’s worldwide estate is within the scope of IHT. It is important to take advice before becoming DD. There are two key situations in which individuals become DD: 

1. Long-term UK residents become DD once they have been UK resident in 15 of the preceding 20 tax years. Individuals who have been continuously UK resident since the 2009/10 tax year will therefore become DD on 6 April 2024. Individuals who first commenced UK residence before 2009/10 may also become DD on 6 April 2024, depending on their pattern of UK and non-UK residence. 

2. Formerly domiciled residents are UK resident individuals who were both born in the UK and who had a UK domicile at birth. Formerly domiciled residents are DD for income tax and CGT purposes whenever they are UK resident. DD for IHT only applies if the individual is UK resident in a given tax year and was UK tax resident in one of the two previous tax years (assuming they are not already DD under the long-term UK resident rule). This means that formerly domiciled residents who commenced UK residence in the 2023/24 tax year will normally become DD for IHT purposes on 6 April 2024, assuming they are also UK resident in 2024/25. 

The remittance basis remains automatically available to DD individuals who are legally non-UK domiciled with less than £2,000 of unremitted foreign income and gains in a given tax year. It is possible to opt out of the remittance basis, if preferred. 

Specific and detailed rules apply to trusts established by legally non-UK domiciled individuals, including in cases where the settlor has since become DD for tax purposes. Please contact your Deloitte contact for advice on this matter as appropriate.  

Losses 

Non-UK domiciled individuals who are DD or who have never claimed the remittance basis can claim relief for foreign losses. Individuals who have claimed the remittance basis and who are not DD must make an election (a section 16ZA election) in order to be able to do so.  

Section 16ZA elections must be made within four tax years of the first tax year after 2007/08 in which the remittance basis is claimed. This means that those who first claimed the remittance basis in 2019/20 must make the election by 5 April 2024 if they wish to do so. The wider implications of making such an election should be considered, and it may not be appropriate to make an election in all cases.

Section 16ZA elections merely enable foreign capital losses to be claimed: capital losses must be claimed separately and the usual four-year deadline for claiming capital losses continues to apply based on the tax year(s) in which the foreign loss was realised. If an election is or has been made, potential foreign loss claims for years between 2019/20 and 2023/24 (inclusive) should be considered. This may be relevant where losses were not computed at the time, or where the section 16ZA election is made some years after the remittance basis was first claimed. 

Inheritance Tax (IHT)

In general, 40% IHT is payable on the value of the estate on death, subject to any exemptions available. Lifetime planning can also reduce the overall IHT suffered. The use of the annual £3,000 exemption for IHT is dealt with above. In addition, gifts made out of income on a regular basis can also be made without any IHT implications, in cases where the gifts are made as part of a normal pattern of expenditure and the donor retains sufficient income to maintain their normal standard of living after the gift. Where relevant, it is recommended that the intention to make regular gifts out of income is documented from the outset of the arrangements and that appropriate records are maintained.

On a more general level, it is important to review any lifetime planning and your will at regular intervals to ensure that they continue to meet your objectives for succession and are appropriate in the light of current legislation, such as pensions rules which affect the tax position when pension death benefits are passed to successive generations, the effect of the residence nil rate band, the reduced IHT rate if 10% of the net estate is left to charity etc. You should also ensure that the conditions for any available exemptions (for example business property relief on unquoted shares) are met. Particular rules apply to couples where one spouse or civil partner is UK domiciled and one is not. The detailed IHT rules are beyond the scope of this note, but should you require assistance in this area please speak to your usual Deloitte contact. 

Tax administration

Keep adequate recordgs

It is important to be able to substantiate tax return entries with underlying records, particularly in the event of an enquiry. Depending on the source of income or gains, there is a requirement to retain the underlying records for up to 5 years from the 31 January following the year of assessment. Following the introduction of the Common Reporting Standard, HMRC now receive taxpayer information directly from other jurisdictions, and enquiries may increase as a result. Furthermore, the time limit for HMRC to raise assessments relating to offshore matters has increased from 4 to 12 years (if reasonable care was taken) and from 6 to 12 years in cases of careless error. The increased periods apply to tax years from 2013/14 onwards in cases of careless error, and 2015/16 where reasonable care was taken. The time limit for cases where deliberate errors were made remains 20 years. 

Common Reporting Standard and trusts

The Common Reporting Standard (CRS) requires Financial Institutions (as defined) to report financial account information relating to residents of participating jurisdictions so that this can be exchanged between the relevant jurisdictions. Professionally managed trusts which derive income primarily from financial assets are likely to come within the definition of Financial Institution. UK resident trusts which are Financial Institutions will need to review their Account Holders (mainly the settlor and beneficiaries of the trust) and report the necessary information to HMRC by 31 May 2024 (see here). Such trusts will also need to consider whether they have any reporting responsibilities under US FATCA.  

Time limits

A number of claims and elections relating to the 2019/20 tax year have a time limit of 5 April 2024, and so need to be considered before that date. Further to the points included above, relief for tax overpaid in 2019/20 must be claimed by 5 April 2024. The most likely scenario in which this could occur is for those taxed under PAYE, where the PAYE deductions are excessive, although overpayments could arise in other cases.