- Financial planning
- 4 minute read
As a new tax year end approaches, it’s important to complete your 2021/22 tax planning to reduce your obligations, with the current tax year running from 6 April 2021 and ending on 5 April 2022. Taking early action to review your tax affairs will enable you to minimise your tax burden.
This article covers the key things you should consider to make the most of tax allowances and exemptions this year.
Check you’ve used your ISA allowance
An ISA is a savings account that allows you to pay no Income Tax or Capital Gains Tax for the returns that you make. Stocks and Shares ISAs are an incredibly popular way of saving and investing over the long term as part of a wider financial planning strategy. The gains from a Stocks and Shares ISA can be significant, especially if you invest up to the maximum amount each year.
Currently the contribution limit is £20,000 for individuals over the age of 18. Junior ISAs, for people who are under 18, have an allowance of £9,000 for the 2020/21 tax year. It’s not possible to carry forward the allowance, so it’s important you use it this year if you don’t want to lose it.
Increase your pension pot contributions
This time of the year is perfect for boosting your pension pot, whether you’re close to retirement or a long way off. Saving into a pension is tax-efficient as any contributions benefit from an incentive of a 25% boost from the government.
Additional tax rate payers with an income of £200,000 or more are subject to the ‘tapered annual allowance’ which reduces the limit. If you need advice on how this may affect you, speak with a financial adviser who can assist with tax year-end planning and pensions advice.
Those who are higher and additional rate tax payers and are subject to the tapering of the tax free allowance can claim back some of the tax-free Personal Allowance. This effectively provides extra tax relief.
Most people have an annual allowance of £40,000 each tax year which can be contributed to their pension before any tax is payable. This allowance can be ‘carried forward’ by up to three years if you don’t use it all. This year, the pension carry forward allowance is applicable up to the tax year 2018/19 and will be lost if you don’t apply to carry it forward before April 5th 2021.
Check your estate plan
Tax year-end planning is a good opportunity to check that you’ve got an estate plan in place that is tax efficient and up-to-date. An estate plan can help ensure that those you care about the most will be taken care of when you’re no longer around. It can also help minimise inheritance tax (IHT) liabilities and ensure that assets are transferred in an orderly manner.
You can give away up to £3,000 as gifts per tax year, without them being included in the value of your estate. This can reduce IHT bills and the allowance is per person, not per household. If you need to carry it forward by a year, that’s also an option, making the total amount of gifts £6,000 if you did not give anything away last year.
Consider making charitable donations
Donations made by individuals to charities are tax free. This can be done through Gift Aid, or from your wages or pension via Payroll Giving. By adding Gift Aid to your donations – charities can claim 25p per £1 donated back from the government – making your generosity go even further. Charities can provide a form to fill out when you make donations which declares that you would like Gift Aid to be claimed on the gift.
If you’re a higher rate taxpayer, you can claim back the difference between the tax donation and what the charity received via your Self-Assessment tax return.
Capital Gains Tax
The annual Capital Gains Tax (CGT) allowance this year is £12,300, so try to take advantage of this by utilising the full allowance. The allowance is for individuals, therefore, couples have a joint allowance of £24,600 so it may be worth transferring some assets into your joint names so you can both stay within individual allowances.
For those with larger liabilities, it is possible to take gains over two tax years and make use of tax-free inter-spouse transfers. For basic rate taxpayers, there’s a 10% tax charge for gains above this allowance, which rises to 20% for higher rate taxpayers.
Tax year-end planning: Get advice
As we approach the tax year-end, it may be worthwhile to get specialist advice from a financial adviser to ensure you’ve got your financial matters in order and are making the most of tax allowances.
Capital at risk. Tax benefits depend on your individual circumstances and tax rules are subject to change. Rules can vary between different regions of the UK and we recommend speaking to a tax specialist for your regional rules.
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