Year End Tax Planning

The fast-approaching tax deadline for 2021/22 will end on the 5th of April and there are some key decisions to consider which can affect your future financial situation. The sooner you start the better, as some of the decisions will need careful consideration. Below are the 4 main categories we advise clients to evaluate.

Making the most of your ISA allowance:

Saving or investing in an ISA offers some great tax-related benefits. Currently you can save up to £20,000 in an ISA each tax year, which includes both Cash or Stocks and Shares ISAs. Profits made from investments within your stocks and shares ISA are not subject to capital gains tax. However, with profits made from outside your ISA, the capital gains tax allowance is £12,300 for the current tax year. Another benefit with stocks and shares ISAs is that all dividend income remains tax free. In comparison, outside of the ISA, only the first £2,000 is tax free. Finally, all the interest earned from an ISA is also tax free, therefore the income is not subject to income tax. Overall, ISAs can be an excellent way of making your money work harder for you, as any money you put into them is free of any further liability.

Inheritance Tax:

As the chancellor has now confirmed there will be no major reforms to IHT, now is a good time to consider your options. One of the easiest, ways to reduce a future IHT bill, is to give some of your wealth away by using your gifting allowance before 5 April. Both you and your partner can each pay your children or grandchildren up to £3,000 a year and it will be deducted from your total estate if you die. With the nil rate bands currently frozen until April 2026, it is more important than ever not to let these go to waste.

Pensions:

Pension contributions is an efficient way to reduce the tax liability to save for your retirement. Through contributing, you have the double benefit of receiving a full income tax relief and reducing your taxable income. Therefore, all the money you pay into a pension qualifies for tax relief, which provides an instant boost to your savings.

Capital Gains Tax:


The chancellor has also confirmed that the tax-free allowance will remain at £12,300 and there will be no changes to the tax rate. Currently the tax rate is dependent on the level of income tax you pay – 10% for basic-rate taxpayers and 20% for higher-rate payers (and 18% and 28% respectively if you’re selling a property). It is important to consider if it would be more beneficial to realise the gains this or next tax year.