Tax Year End
Tax Year-End – Opportunities to consider!
As the new calendar year starts, the end of the tax year is suddenly only around the corner with just a couple of months to tick off any tasks that need you to focus on, so act now and don’t miss out!
As you will know, the tax year ends on the 5th April and this year we are lucky that there is no clash with Easter bank holidays and although this may seem a long time away, it will be here before you know it, so we have put together some of the key areas with opportunities to consider before the deadline arrives.
What can I pay into my pension?
There is a limit to the amount that can be paid into a pension plan to benefit from tax relief and not face any tax charges. This is known as the Annual Allowance, which although set at £40,000, you may have the opportunity to carry forward any unused allowance from the last three tax years. It’s a worthwhile exercise checking if you have used your full allowance from 2018/19 onwards and if not, you could increase the amount paid into your pension, depending upon your earnings. However, it may be that your employer pays contributions into your pension for you and in this scenario, there are more prospects available to pay part of an expected bonus into your pension to name one example. This would potentially reduce the income tax you would normally face as well as the national insurance which is due to increase by 1.25% from 6th April. There are so many ways in which pensions can assist in reducing taxation and maximising tax relief, so get in touch to discuss this with us.
What ISA allowance do I have available?
Here’s another opportunity to benefit from saving, free of income and capital gains tax. The allowance is still £20,000 per individual but unlike pensions, you cannot carry any unused allowance so make sure to use your allowance and your spouse’s allowance if you can. If you want to review your ISA arrangements, whether this is to discuss existing or make additional investments before the deadline, please get in touch.
Capital gains, can I make my investments more tax-efficient?
Each situation is different of course, but you could make changes to your investments, such as transferring assets from one spouse to another to make use of allowances available and reduce exposure to taxation where possible. Alternatively, you may need to raise a capital sum to carry out home improvements, for example, selling investments in proportions just before and after the tax year can improve the level of tax that could arise.
Dividends, can I make better use of this allowance?
Taxation on dividends is set to increase from 6 April 2022 by 1.25% across the board and in the case of most company directors, this could be a significant increase. It may be a worthwhile opportunity to make sure you have firstly used up the dividend allowance available, which is currently £2,000 for each individual and considered if there is a requirement to adjust the level of salary and dividends as the level of taxation increases.
Inheritance Tax, what changes can I make to reduce the taxation?
There are many different ways to reduce the potential tax burden that could arise, such as including the restructuring of investments and ensuring that you have used the different allowances to include gift allowances before 5 April 2022. Although the nil rate band of £325,000 per individual being the first amount that is free of inheritance tax, may seem generous, it is very easy considering the value of property to go over this threshold and face a tax of 40%. There is the opportunity to carry forward the unused annual gift allowance of £3,000 per individual, which could effectively remove £12,000 in value from the estate for a married couple. This is just one example, but combining the different allowances, along with other types of planning can amount to a significant tax saving.