End of Year Tax Planning Opportunities
With the new tax year fast approaching, it’s the perfect time to make sure you’ve taken advantage of the tax allowances and tax planning opportunities available to you.
Although we would recommend utilising these tax opportunities over the year, it’s not too late to benefit from them before the new tax year begins on 6th April to minimise your tax outgoings for 2021/22.
Below, our tax advisors and experts have highlighted some of the tax planning opportunities that you can still take advantage of:
Gifting allowances
By taking advantage of yearly IHT-free gifting opportunities, you can help to minimise the amount of tax you’re liable to pay.
Annual gifts of up to £3,000 per tax year can be made free of inheritance tax. If this allowance isn’t used during the previous tax year 2020/21, you could combine it with your current tax period allowance, meaning you could gift up to £6,000 tax-free in 2021/22.
If you are a married couple, you could combine your allowances and gift up to £12,000 completely tax-free.
Each tax year you can also make infinite small gifts of up to £250 per person without paying IHT. You could also make regular gifts to children or grandchildren before the year ends as:
- ISA payments
- Paying university fees
- Accommodation costs
- Family holidays, or
- Pension contributions
Capital Gains Tax (CGT)
Capital gains tax is a charge applied to the gain in capital from selling your assets for a profit – including stocks, investment funds, second homes, inherited properties, the sale of a business, valuables (e.g. art or jewellery) or assets that were transferred below their market value.
Before the end of the 2021/22 tax year, you will need to calculate your capital gains to find out whether you’re exempt or liable to pay. The CGT exemption is currently £12,300 and has been frozen until 2025/26, with any gain made over this amount being potentially chargeable.
However married couples are individually can gift or transfer an asset to a spouse to ensure you are benefiting from both of your exemptions.
Individual Savings Accountants (ISAs)
Different types of ISAs are available that allow you to generate and withdraw capital gains tax-free, including:
- You can move up to £20,000 into an ISA tax-free
- You can invest up to £9,000 into a Junior ISA tax-free
Although you can no longer set up a Help-to-Buy ISA, you can still use accounts that have been opened previously. With this type of ISA, you can save up to £200 per month, and if you use this account to buy your first home you will receive a 25% tax-free bonus of up to £3,000.
In addition, you could open or utilise a Lifetime ISA if you are aged between 18 and 40. You can move up to £4,000 annually again, with a 25% tax-free bonus on the year’s contributions. However, this can only be used to buy your first home or in retirement (e.g. withdrawn after 60 years old).
Enterprise Investment Scheme (EIS) & Seed Enterprise Investment Scheme (SEIS)
Both EIS and SEIS are initiatives that have been created to benefit small businesses by encouraging investors to finance SMEs. Investors in qualifying companies benefit from substantial income and capital gains tax reliefs, such as:
SEIS
SEIS is specifically designed to attract investors to start-up businesses that are less than two years old. Investors in this scheme get income tax relief of up to 50% on an investment of up to £100,000, meaning they could benefit from a maximum of £50,000 tax relief each year.
EIS
On the other hand, investors in the larger and older companies that qualify for EIS receive income tax relief of up to 30% per year on a maximum of £1,000,000 investment, meaning they could benefit from up to £300,000 tax relief.
As 5th April is on the horizon, now is a good time to claim for any tax relief before the new tax year. However, if you miss the deadline for the current tax year, this might delay the process of receiving your credit.
Pensions
When contributing to your pension pot, you can benefit from an annual allowance – which is the most you can pay into your pension without paying tax. Therefore, it is important to make sure you utilise this allowance to build your pensions tax-free.
For the tax year 2021/22, the annual allowance is £40,000 or as much as you earn annually, whichever is the lowest amount and applies across all your pensions. Your annual allowance may be lower if you have flexibly accessed your pension, known as the money purchase allowance.
If you haven’t used this allowance in the past 3 years, you may be able to “carry forward” your left-over allowance. You can then take advantage of this before the new tax year starts to contribute the maximum to your pension tax-free.
Distribute your contributions throughout the year
Whether you plan to invest large amounts of money into a new business or set up a new pension scheme, it’s better to spread your finances throughout the full 12 months.
Splitting money across the entire tax year makes managing your funds easier – it becomes a part of your monthly outgoings instead of being a lump sum of money that you might struggle to gather. Not only this but you should avoid sourcing a large sum of money within a short timeframe, as it could risk putting yourself or your business at a financial disadvantage.
How can Edwards Accountants help?
We understand that life can become busy, and you may not always have the time to make use of the tax planning opportunities throughout the year, but that’s why we’re here to help.
Whether you’re an individual, a business owner or an investor, it’s not too late to minimise your tax outgoings with the tax credit returns available before the current tax year ends. As experienced chartered accountants in Walsall, we would be delighted to help you make the most out of this remaining tax year. Please contact us to speak to our team of qualified tax experts!
For our West Midlands Offices:
Tel: 01922 743 100
