Major tax changes on horizon will give investors plenty to think about

A combination of the announcements made in the Scottish Budget last month and the UK Government’s Autumn Statement in November could lead to increased tax liabilities for people in Scotland over the next two years and beyond. Our yearly recommendation around personal allowances – to use them or lose them – has never been more relevant.

It came as little surprise, but Capital Gains Tax is one of the main areas set to change. From a current tax-free allowance of £12,300, the limit will be cut by more than half to £6,000 for 2023-24 and will halve again to £3,000 in 2024-25.

If you have an investment portfolio with significant gains, you could consider selling this tax year and transferring the assets into a stocks and shares ISA to maximise the use of your current allowance. Similarly, if you are planning on selling a property in the next few months for a large gain, moving this forward may save a large tax liability.

That said, a property sale should not be rushed – while stocks can be sold in a matter of days, it can be a much more arduous process if property is concerned. For instance, tenants need to be served notice ahead of a potential sale, and there may be repairs or maintenance to be completed before putting it on the market.

Estate agents also predict house prices will continue to fall in 2023, so timing on that front is another important factor to consider. There is clearly a balance to be struck between the potential tax bill and a future sale price, depending on individual circumstances.

Another area of taxation set to change from April is the dividend allowance, which is also being cut in half from £2,000 to £1,000 for

2023-24, and then to £500 for 2024-25. The current £2,000 is quite generous, but if you consider typical annual growth, even a relatively small portfolio could easily breach the £500 threshold by the time it is 2024.

Investors who are part of a Share Incentive Plan could opt to automatically reinvest dividends rather than taking them as income – doing this means they do not count towards your annual allowance. Speak to your adviser, if you have one, to make that change. More generally, you may also want to consider the structure of your portfolio and whether a focus on income may in fact be better tilted towards capital growth in future years.

While it should not affect their plans too much, business owners who take a dividend from their company will need to factor in the tax implications.

Perhaps the most publicised changes due in April are the income tax increases brought in by the Scottish Government. With lower thresholds and reductions to personal allowances for higher and top-rate tax payers north of the Border, some will be reviewing their income in its entirety.

Of course, with cost-of-living pressures, everyone’s circumstances will be different, but provided you are in a position to do so and have the cash reserves for regular expenses and emergencies, you could consider topping up

your pension savings. Particularly if you have started the new year with a promotion or pay rise, you could opt to contribute the extra 1 per cent or 2% towards retirement funds, which will cut your tax liability in the process.

With all of these tax changes, this year we may see more people getting involved with higher risk Venture Capital Trusts and Enterprise Investment Schemes because of the associated tax relief. However, these are only suited to sophisticated investors who can afford to take the associated risks.

Regardless of your situation, the best advice we can give is to start planning now before the changes come into effect from April. Don’t rush into any big decisions, but consult an expert adviser who can guide you through your plans for the months and years ahead.

Daniel Hough is a financial planner at wealth manager RBC Brewin Dolphin.