What can you save in tax before April 5th? Check it out and have a think what you can spend it on in the future, if you act now!
Kevin Taylor, our Tax Consultant, has shortlisted the main personal tax year-end tasks to focus on, broken down by the various taxes – all aimed at increasing your tax-efficiency.
Here's Kevin's checklist for your personal tax year-end tasks.
1.If you have family members who haven’t used their personal allowance in the year (£12,570 tax free income in 2021/22) consider whether they can be paid from your company for work they’ve carried out.
2. If you have any unused Basic Rate Band (generally the area between £12,570 and £50,270 income) think about accelerating income into this year, if you may be above that threshold next year – this could mean paying out a dividend payment, or giving yourself a salary bonus etc.
3.If your income is between £100,000-£125,140, the marginal tax rate is 60% as personal allowances are tapered down. You might want to consider deferring income into the next year, if you think that your income may be lower next year. You might also want to examine the possibilities for making additional pension contributions, helping you to extend your basic rate band.
4.Generally – consider whether income-producing assets should be transferred to your spouse, if your partner is in a lower tax bracket.
5. The Higher Income Child Benefit Charge claws back part, or all, of any family’s child benefit from the highest paid spouse whose income exceeds £50K. For every £100 of income over £50K, 1% of child benefits paid is clawed back. So, at £60K income and above, the whole of the child benefit is clawed back.
6.There are ways to mitigate this claw-back. Where one spouse is on a lower income than the other, see if it’s possible to divert income to the lower paid partner. This can then result in partners having an income below the £50K level.
7.The relevant income can also be reduced by making additional pension contributions and gift-aided charitable donations.
Capital Gains Tax:
8. The first £12,300 of capital gains are tax free (the annual exempt amount). If you’ve planned relevant disposals that can be split, then think about disposing of some within the current year and some next year to maximise the allowance.
9.If you have stocks and shares, for example, that show a paper profit but which you want to keep, you can take steps to minimise your capital gains tax (CGT) exposure. Consider selling some of the stocks/shares now to realise the gain within the tax-free allowance and get your spouse to acquire them. This will save CGT on any future disposal.
10.Look into whether some assets could be transferred to your spouse, to benefit from both partner’s annual exempt amount on subsequent disposal.
Individual Savings Accounts:
11. The maximum you can invest in an Individual Savings Account (ISA) in any tax year is £20,000 and the allowance can’t be carried forward. Interest rates are low, making cash ISAs less attractive than they once were. But stocks and shares ISAs also give you benefits, not just in allowing tax-free dividends but also in allowing tax-free capital gains.
Enterprise Investment Scheme:
12. If you want to make more Enterprise Investment Scheme (EIS) investments to carry back to 2020/21, they need to be made in good time for the EIS3 certificates to be issued.
Annual Pension Allowance:
13. Unused pension contributions can be rolled forward for three years. As such, anything unused from 2017/18 will fall away on 5 April 2021. If you have contributions to roll forward from this period, make sure you do this before the coming year-end, or they will be lost.
14. If you have no need to take dividend income, think about declaring £2,000 anyway, if available, as the first £2K is always tax free.
15.You can make gifts totalling £3,000 outside of any inheritance tax considerations, and any unused allowance from 2020/21 can also be utilised up to 5th April 2022 – both elements that should be factored into your year-end planning.
Get in touch to prepare for the tax year-end.