Year end tax planning
The Income Tax year ends on 5th April, and there are many tax allowances and reliefs that are available only for the tax year – it’s a case of use them or lose them! Have you made the most of these tax-saving opportunities? Here are a few of the obvious ones:
- The annual ISA allowance of £20,000 – and remember your spouse or partner also has the same allowance, so you could save £40,000 in this tax-free ‘wrapper’ this year
- You can also put up to £9,000 per child or grandchild into a Junior ISA, a great way to pass money on to the next generation
- Pension planning is important at this time of year. Have you used your full annual allowance? What about unused relief from the last three years? Higher rate taxpayers should be looking at this now.
- Higher rate taxpayers get additional personal tax relief on Gift Aid donations to charity, so now could be a good time to be generous and support good causes.
- Pension contributions and Gift Aid donations can also be useful tools to take your income below the 45% additional rate tax band or avoid the loss of personal allowances or Child Benefit.
- You can gift up to £3,000 to reduce the value of your estate for Inheritance Tax purposes. This is the one relief where you can also use last year’s allowance too, if you haven’t used it yet.
- If you own your own company, make sure you vote dividends of at least £2,000 per shareholder (provided you have profits available) as the first £2,000 of dividend income is tax-free. If you don’t need the cash now, just leave it on loan to the company and draw it later.
This is not an exhaustive list, but we hope it will start you thinking. Please get in touch with your usual contact at Burton Sweet, or use the contact links on this page, to make an appointment with us so we can help you minimise your taxes for 2021/22. Some of these might tale time to arrange so don’t leave it until the first few days of April! And remember, once we get to 6th April the 2021/22 tax year will effectively be closed, so don’t miss out!
It’s never to early to start planning
Capital Gains Tax and Inheritance Tax offer opportunities to mitigate tax liabilities with the right planning, implemented at the right time. The best tax planning is done well in advance of completing a transaction, so it’s never too soon (but it can be too late!) to ask for our advice.
That’s why we encourage clients to regularly discuss their plans and aspirations with us so we can advise them on an ongoing basis, especially as tax rules can change overnight and require a major change in plans in order to retain or recover previous tax advantages.
As with any tax planning, the desire to reduce you tax bill needs to be balanced against the benefit you receive from the funds spent.
We do not undertake or advise clients on ‘aggressive ‘ tax avoidance strategies. These are under increasing scrutiny from HMRC and with higher costs to advisers as well as higher risk of investigation we leave this planning to others to promote.
Be proactive not reactive when it comes to tax
Businesses likewise need to plan ahead and take advice before entering into major contracts or transactions. They also have tax saving opportunities which need to be used in an accounting year – for example a company with a 31st March year end should look at the tax saving opporunities it has towards the end of its financial year. Investment in, say, company pensions or capital equipment incurred in March 2022 will reduce the tax bill due 9 months later on 1 January 2033. If it delays that investment until April 2022 it won’t see the benefit in terms of reduced tax until January 2024!
There may be more than one way to achieve your objective – let us help you choose the way with the least tax impact.
We can advise on the tax implications of any business issue, including capital expenditure, company cars and employee benefits, staff remuneration packages and bonuses, dividend policy and share structures and tax-efficient use of pension contributions, to name just a few. Now would be a great time to have that conversation with you, so give us a call.