2021 was a busy year for financial announcements. Two budgets, various allowance freezes, one new Health and Social Care Levy, and the suspension to the State Pension triple lock all mean that preparing for the tax year end is more important than ever.
Here are simple tasks you can complete now to make sure you navigate tax year end as tax-efficiently as possible.
1. Make the most of the Annual Allowance
In the 2021/22 tax year, the Annual Allowance stands at £40,000 (or 100% of your earnings, whichever is lower). This means you can pay up to this amount into your pension and receive tax relief on the contributions you make.
You’ll receive tax relief at the basic rate of 20% so a £100 increase in the size of your pension pot will only cost you £80. As a higher- or additional-rate taxpayer, you can claim a further 20% or 25% (depending on the rate of tax you pay) from the government through your self-assessment tax return.
This is a valuable benefit, so if you haven’t made use of your Annual Allowance yet, be sure to do so if you can afford to.
2. Remember your child or grandchild’s pension too
The maximum contribution that non-earners can make during the 2021/22 tax year is £3,600. Tax relief means that this level of contribution costs just £2,880.
Paying into a pension on behalf of a child or grandchild could see them receive up to £720 as a top-up from the government.
A pension can only be accessed from the age of 55 (rising to 57 in 2028). While this ties your child’s money up for many decades, starting to save into a pension early gives your child a great chance of achieving a comfortable retirement, however far away it might be.
Be sure to make full use of tax relief if you can afford to.
3. Top up your ISAs
The ISA subscription limit for the 2021/22 tax year is £20,000. This is spread over the ISAs you hold, so, for example, you could pay £5,000 into your Cash ISA and still have £15,000 left for your Stocks and Shares ISA.
Like pensions, ISAs are tax-efficient, so making the most of this allowance is a great way to boost your finances. You don’t pay tax on the interest you earn on a Cash ISA and Stocks and Shares ISA gains are free of Income Tax and Capital Gains Tax.
The ISA allowance doesn’t carry over, so if you don’t make full use of it before 5 April, you’ll lose it.
4. Be sure to top up your child’s JISA too
As with an adult ISA, a Junior ISA (JISA) is available as a Cash or Stocks and Shares product. It has the same tax efficiencies too.
The subscription limit is only £9,000 though, and like the adult JISA, this amount can’t be carried over. You’ll need to make full use of the limit this tax year if you can afford to.
5. Remember your Dividend Allowance
From April, the rate of tax you’ll pay on dividends over the Dividend Allowance is rising by 1.25%. The allowance itself will remain at £2,000.
Any dividends you take in the 2022/23 tax year above the allowance will be charged at the new rate, so make the most of the rules as they exist now. If you are able, be sure to pay yourself at least £2,000 in dividends, and then speak to us about how your strategy might change in 2022/23.
6. Make the most of the HMRC annual exemption
With the Inheritance Tax nil-rate band and the residence nil-rate band frozen until at least 2026, you might be worried about the tax liability you’ll leave behind on death.
One tax-efficient way to manage your estate is through making the most of HMRC gifting rules. Now is a great time to revisit your gifting for this tax year.
You can gift up to £3,000 in cash or assets each year – this is known as the “annual exemption” – without the gift forming part of your estate for IHT purposes. The limit is per individual and can be carried forward for a year.
Make use of the exemption before April 2022 but also check whether you or your partner have any unused exemption from last year. You might be able to gift £12,000 as a couple in the coming months, thereby lowering a future IHT liability.
Get in touch
At Fingerprint Financial Planning, our expert financial planners can help you to make the best and most tax-efficient choices for you as the new tax year approaches.
If you would like to discuss your tax thresholds or allowances, get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
