Plan early, not last minute!

Now that the 2020/21 tax year is behind us, we start to turn our thoughts to the new 2021/22 tax year and what we could be doing to make the most of tax efficient saving and planning.

One benefit of being proactive at the beginning of the tax year, rather than reactive at the end of the tax year, is having a full year of benefiting from your careful planning. Whether that be utilising your ISA allowance for the potential of tax-free gains or contributing towards a pension to reduce your income tax liability, there are plenty of ways you can make the most of the new tax year.

So, what can you do?

There are lots of ways to plan for the beginning of a new tax year, we have listed some of the key areas below:

You can use your Individual Savings Account (ISA) allowance.

For the 2021/22 tax year the ISA allowance will remain the same at £20,000 per person. The main benefits of investing into an ISA are that there is no Capital Gains Tax (CGT) and no tax on UK income, also, you do not need to declare any gains or income from your ISA on your tax return!

You can use your Capital Gains Tax (CGT) allowance.

Individuals will have an annual CGT allowance of £12,300 for the new 2021/22 tax year. This means you can realise gains made on investments up to the annual allowance tax free. If you are married, if possible you can also pass assets to your spouse prior to disposal to make use of their CGT allowance too.

Gifting.

You benefit from having an annual gifting exemption, which will be £3,000 for the 2021/22 tax year. This means you can give away gifts including Cash worth up to £3,000 without them being added to the value of your Estate for inheritance tax purposes.

Some additional gifts can also be given in recognition of marriage and higher value gifts, of any amount, can be made subject to the ‘7-year rule’.

Use your tax-free pension allowance.

The majority of individuals (rules differ for those with very high incomes) who have not yet accessed their pension flexibly have an annual pension allowance which means you can contribute the higher of 100% of your earnings (up to a maximum of £40,000) or £3,600 per year into a pension plan and receive tax relief at their marginal rate.

You can also ‘carry forward’ any unused allowance from up to three previous tax years, as long as you were a member of a registered pension scheme at the time.

This allowance could be particularly useful for higher rate taxpayers, to help reinstate their personal allowance (where income exceeds £100,000), or their eligibility to Child Benefit (where income exceeds £50,000).

Save into a pension for someone else.

You could also consider saving into a pension for your spouse, children, or grandchildren. Even if they have no earnings of their own, you can contribute up to the maximum of £3,600.

Use the personal allowance of your spouse.

If your spouse is a lower or non-taxpayer and you are a basic rate taxpayer, it is possible for them to transfer £1,260 of their unused personal allowance (for the 2021/22 tax year) to you, reducing the overall amount of tax you pay by £252. This can also be backdated for 4 tax years.

Some assets can also be transferred into your lower tax-paying spouse’s name to lower your overall tax liability. Assets can be passed between spouses without incurring any CGT liabilities.

How can we help?

If you’re thinking about the start of the new tax year and the steps you can take to make the most of your allowances, please get in touch and we’ll be happy to help.

India Johnston CII Cert (FS)

 

(The above is for guidance purposes only and should not be taken as individual advice).