Spring is coming and the 2021/22 fiscal year ends on Tuesday, April 5th, less than three weeks from now. This is the time to consider tax planning and different options and make sure you're taking advantage of all the exemptions available for you.
Personal circumstances vary, so if you have any questions or concerns about a specific area, please do not hesitate to contact us. If you don’t, please take the time to review your tax and financial situation to identify potential tax planning opportunities and act before it's too late. With the impact of the COVID pandemic and now the ongoing tragedy in Ukraine, government finances are under stress, and this may well impact future tax breaks and rates. We've divided this guide into helpful sections:
● Maximize your personal allowance
● Capital Gains Tax
● Charitable Donations
● Wills
● Transfer of assets to spouse or civil partner
● Use an Individual Savings Account (ISA)
● My checklist at the end of the year
Maximize Your Personal Allowance
You will find that if you earn more than £150,000 you will pay the additional income tax rate which is 45% (46% in Scotland). If your income is between £100,000 and £125,140 you are subject to an effective tax rate of around 60%. This is because once your income exceeds £100,000 your personal allowance will be reduced by £1 for every £2 you exceed the £100,000 tax bracket. The good news is that there's still a way to reduce your tax burden with a few simple planning techniques. In some cases, personal pension contributions and charitable donations can effectively reduce taxable income. This can mean less exposure to a higher tax rate and maximizing your benefits. As a basic taxpayer, you may also be able to transfer £1,260 of your unused personal allowance to your spouse or civil partner. You can only do this if neither of you is a top taxpayer.
Capital Gains Tax
Individuals benefit from an annual CGT exemption each year (£12,300 for 2021/22). This is useful where shares are held outside an ISA and you are looking to sell, perhaps to fund an ISA subscription. If you're planning major disposal, you can save on taxes by spreading it over multiple tax years. The CGT exemption cannot be carried over from one fiscal year to another. It can be interesting to single out the losses available to offset the capital gains. If you realize capital gains and losses in the same tax year, the losses will be deducted from the gains before the capital gains tax-exempt amount (£12,300 in 2021/22) is deducted.
Charitable Donations
Tax relief can also be claimed for cash donations to registered charities in the UK and certain other countries. The relief works in the same way as private pension contributions. If you are a basic rate taxpayer and want your chosen charity to receive £100, the real cost to you is only £80. For a higher taxpayer, donating £100 to the charity could actually only cost you £60. Again, the effective cost drops further to just £55 for an additional taxpayer. You must ensure that you have paid enough taxes to allow the charity to apply for donation support to avoid an unintended tax bill.
Make a Will/Review Existing Wills
If you die without a will, your assets will be distributed to your relatives in accordance with the intestacy rules. Your surviving spouse or registered civil partner can only receive part of your estate and anything over £325,000 is subject to inheritance tax at 40% (up to £500,000 if zero residency rate is available).
Transfer of Assets to Spouse or Civil Partner
In order to save taxes, it can make sense to give all or part of your income-generating assets to your spouse or partner. There are a number of legal and practical considerations that should be considered before making a transfer. You should also be aware that there are a number of conditions that must be met for this to work. In principle, your gift must be made to your spouse or civil partner from whom you have not separated and must be an unconditional gift. Professional advice should always be taken so your individual circumstances can be reviewed.
Make use of Individual Savings Accounts (ISAs)
With an ISA, you can save tax. So if you have investments, it may be worth checking whether they can be held in an ISA. You can save a maximum of £20,000 on ISAs in the 2021/22 tax year. Potentially, an ISA can hold cash, stocks, bonds, and other permitted investments. A number of age and residency restrictions apply to ISAs and you should consider the need to seek advice from a registered financial adviser.
My Checklist at the End of the Year
● Take full advantage of my ISA 2021/22 allowance
● Maximize the allowances available in the family
● Make sure I profit from my business in a tax-efficient way
● Find out how timing dividends and bonuses could reduce my tax burden
● Implement a tax-efficient giving strategy
● Review and update my retirement plans
● Check my estate plan and will
● Send my business and personal paperwork to my accountant on time!
Do You Need Help?
We enjoy working with independent professionals and independent business owners and if you are not receiving the service and support you deserve from your accountant please contact us on 02085718826 or use our online inquiry form. We offer free initial consultations, advice and support via phone or video conference if you have concerns about meeting in person.