News and Analysis | Author: Jonathan Cooper | 23 May 2024

Reporting for 2023/24 Tax Year

Introduction

A tightening personal tax net now means more and more investors will be required to file a Self-Assessment Tax Return and settle any liabilities due or face penalty charges from HMRC.

Changes to last year’s tax landscape that affect investors the most are cuts to tax allowances, most notably the slashing of:

• The Capital Gains Tax allowance to £6,000 from £12,300 previously;
• The Dividend Allowance to £1,000 last year from double that previously.

For investors that hold assets within an ISA, pension or investment bond account, there is nothing to do. Such accounts afford you tax advantages which make the need to report gains or dividends obsolete.

However, for investors that that hold “general investment accounts” or “investment portfolios” these accounts are not sheltered from tax and so action may be necessary to avoid penalties from HMRC for not submitting a tax return.

More detail – Capital Gains & Capital Losses

Capital Gains and Losses occur when an underlying asset (or fund) is sold, in full or part, within the account. So, any withdrawals will trigger this tax point, as will the regular rebalancing of your portfolio that maintains its risk profile and tactical asset positioning. This rebalancing process happens automatically due to the Discretionary Fund Management agreement on your account.

Where a fund has increased in price since the point it was purchased to the point it was sold then a gain is generated.

Where the price has dropped then this is a loss and can be used to offset gains. Losses from previous years can also be brought forward and used for this purpose.

Where the aggregate value of all gains and losses from all taxable investment accounts you hold, shares you own, disposal of personal possessions (worth £6,000 or more) and non-main residence property disposals, exceed the annual allowance of £6,000 then Capital Gains Tax will be due.

The rate at which Capital Gains Tax is paid depends upon your other income. If you are a basic rate taxpayer, it is 10% on investment gains. For higher and additional rate taxpayers it is 20%. Where the gain added to other income means some of it is in the basic rate band and some is in a higher rate then you pay a bit at each rate.

More detail – Dividend Allowance

As well as receiving increases in the value of your investment through gains (the increase in the price) some investments also provide investment returns via payment of cash back into your account known as Dividends.

These Dividends are treated as taxable income.

When Dividends from all sources, which could also be paid from a Limited Company you work for if you are a Director or other shares you own, exceed the annual dividend allowance of £1,000 tax is then due.

Where these Dividends fall into your basic rate band, they are taxed at 8.75%, for higher rate dividends it is 33.75% and additional rate is 39.35%.

A note on interest earned

Interest, such as that earned on cash deposits, may also need to be reported to HMRC. Some funds hold investments that are known as fixed interest bonds or government bonds and these pay out interest rather than dividends.

Interest from all sources, cash and investments, is taxable once it breaches your savings allowance (and assuming you have used up all of your personal income tax allowance).

Interest rates during the 2023/24 tax year were considerably higher than we have seen in previous years. Even modest amounts in taxable investment accounts could mean that on their own or when added to any other interest earned in the tax year from other sources a liability will be due. This should therefore be considered carefully.

The tax reporting information you receive from your investment account providers will also declare whether interest received has already had tax deducted or whether it was paid gross of tax. Both figures should be included in your tax return.

For basic rate taxpayers the amount of interest you can earn before declaring for tax due is £1,000. For higher rate taxpayers it is £500. For additional rate taxpayers all interest earned must be declared.

For those with low earnings (less than £17,570) from all other sources, a more generous £5,000 savings rate allowance.

More details can be found here – https://www.gov.uk/apply-tax-free-interest-on-savings

Do I have to complete a tax return?

Your investment providers must provide you with a “Consolidated Tax Statement” to provide you with information on interest, dividends and gains made in the last tax year (6 April 2023 to 5 April 2024).

We shall also keep a weather eye out for these and signpost you to them when they become available. This will usually be late spring to summer 2024. Information can also be found by logging into your account.

• If you hold a general investment account with Transact then once logged in navigate to “Reports” then “Capital Gains” and the “Taxable Investment Income” views.
• If you hold an investment portfolio with Aviva, then once logged in you should navigate to the correspondence and documents store to download the tax year end reporting.
• If you hold investments with another provider which we established for you then please get in contact with us.

With this information, together with similar information from your bank accounts any other investment account providers that you have (and we do not look after for you), you should be able to determine whether any of these allowances has been breached and thus are required to submit a tax return.

The deadline for submitting your tax return for the 2023/24 tax year depends on your situation.

• If you have never completed a return before you must tell HMRC you need to do so by 5 October 2024.
• The deadline for submitting a paper return is 31 October 2024.
• For online submissions it is 31 January 2025.

Further details can be found here – https://www.gov.uk/self-assessment-tax-returns/deadlines

How do I complete a tax return?

Essentially there are two ways to achieve this:

• Do it yourself;
• Pay an accountant to do it for you.

The DIY method

This will save you money but cost you time and you need to be confident that you have all the information you need from all your sources of income and investment returns.

You will also need to ensure you are set up with a Government Gateway account if you intend to submit it online (this will show you details about your state pension entitlement too).

HMRC provide a wealth of information and guidance on what is needed to register and submit a tax return. A good place to start is here – https://www.gov.uk/self-assessment-tax-returns

The services of an Accountant

This will cost you money but provide the reassurances that the return will be submitted correctly and on time.

You should ensure, however, that the accountant you chose to employ is registered with Institute of Chartered Accountants in England and Wales (ICAEW) or Institute of Chartered Accountants of Scotland (ICAS) depending on where you live.

Looking to the future

We are now into the 2024/25 tax year and some allowances have been cut even further. Capital Gains allowance halves again to just £3,000 as does the Dividend Allowance, down to £500.

In addition, other allowances remain frozen. The personal income tax allowance remains at £12,570 and savings allowances remain as £1,000 for basic rate taxpayers, £500 for higher rate and nil for additional rate payers.

This will mean yet more people will need to complete a tax return following the end of this tax year on 5 April 2025.

With this is mind you may wish to act now to limit, where possible, the impact of these further restrictions on income and gains. If this is of concern please contact your adviser and they will of course discuss this with you.

As a matter of course we will look to help you shelter more of your assets from tax using ISAs and pensions or investment bonds where we can, and it is in your best interest. Your adviser will speak to you about this at your next review meeting.

The best advice for now is to be prepared.

We are here to help!

Whilst we are not allowed to provide you with advice on taxation issues (we are not accountants!) we can provide you with help and guidance on what you need to do.

So, if you have any concerns or questions then please do not hesitate to get in touch with us.