Optimise your finances before the October budget
As the October 2024 UK budget approaches, it’s time to fine-tune your financial strategy. With whispers of reductions in personal and savings allowances, and the scrutiny on incorporation benefits for sole traders and partnerships, proactive planning is crucial. Here’s how to optimise your tax strategy and protect your financial future.
Maximise annual allowances
Annual allowances are vital for reducing taxable income, so use them effectively before any changes:
- Utilise ISA allowances: Max your Individual Savings Account (ISA) contributions for tax-free growth. For 2023/24, the limit is £20,000, a straightforward way to shield savings from taxes.
- Pension contributions: Boost your pension to prepare for retirement and receive immediate tax relief. The current allowance is £60,000, but this could shift. Increase contributions while reliefs are available.
- Capital Gains Tax (CGT) Exemption: Each person has a £6,000 CGT exemption for 2023/24. Plan asset disposals to use this fully, potentially saving tax.
Consider Incorporation and Business Structuring
For sole traders and partnerships, incorporation can offer tax benefits:
- Lower corporate tax rates: Incorporation means profits are taxed at potentially lower corporate rates, offering savings.
- Flexible profit extraction: As a limited company, choose between dividends and salaries for profit extraction, minimising personal tax bills.
- Increased credibility and limited liability: Enhance your business’s credibility and protect personal assets from business debts through incorporation.
Navigate Dividend Tax Planning
With potential hikes in dividend tax rates, optimise your strategy:
- Review dividend payments: Ensure current dividends align with your tax bracket. Consider advancing payments to benefit from current rates if increases are expected.
- Use dividend allowances: The £1,000 tax-free allowance for 2023/24 can result in savings. Transfer shares to a partner to double the tax-free threshold.
Optimise Director Remuneration
Balancing salary and dividends is key for tax efficiency:
- Salary vs. Dividends: Adjust the balance to reduce tax liabilities, given salaries incur income tax and National Insurance, while dividends face dividend tax.
- Bonus timing: Time bonuses before rate changes for tax advantages.
- Incorporation benefits: Directors of sole traders or partnerships should consider incorporation for more flexible remuneration options.
Plan Proactively
- Review financial strategies: Regularly update your financial plan to align with your goals and maximise allowances.
- Consult professionals: Work with an accountant or financial advisor to explore incorporation benefits and tailor your strategy to potential changes.
- Stay informed: Keep updated on budget news to adapt swiftly to any new policies.
Conclusion
The impending budget offers a chance to reassess your financial strategy. By leveraging annual allowances and considering incorporation, you can secure both immediate and long-term tax efficiencies.
Act now to protect your financial health and prepare for whatever the budget brings. Contact us for personal advice.