As is the way with all matters tax, with the close of the busy Self-Assessment season, the focus switches now to the end of another tax year, the 2021/22 period ending on the 5th April 2022. Now is a good time to stop and take a wider view of the actions required to make good use of the relevant tax planning opportunities that may apply to your individual and/or companies’ situation. In a perfect world, you would be making use of relevant opportunities throughout the course of a year. However, it is important to stop and take time to reflect and ensure the correct opportunities are pursued.
Make the most of your ISA allowance
ISAs are free from income tax and capital gains tax. The overall ISA allowance is currently £20,000 across all different types of ISA and does not carry over between tax years. The limits for different ISA types are:
– Stocks & Shares: £20,000 a year
– Junior ISA: £9,000 a year
– Help to Buy ISA: £200 a month (now closed to new applicants)
– Lifetime ISA: £4,000 per year
Make use of your personal allowances within a couple
If you are married or in a civil partnership, you may be able to save money by structuring your finances to take advantage of both spouses’ tax allowances. This can be particularly lucrative whereby one spouse pays tax at a lower rate than the other.
Review your buy-to-let profit sharing
Further to the tip above, in a circumstance where one spouse is a basic rate taxpayer and one a higher rate taxpayer, it makes sense for the lower earner to receive a greater share of rental profits so as to legally avoid a higher rate tax charge.
Utilise your annual allowance for pension contributions
Investments in your pension are free from income tax and capital gains tax. Each year you can contribute as much money as you earn, usually up to £40,000 (although this tapers down to £4,000 for higher earners). Basic rate tax relief is obtained at source and higher rate tax relief is obtained via your annual tax returns. You may also be able to make extra contributions by carrying forward any unused allowance from the last three tax years.
Plan for the High-Income Child Benefit Charge
This tax charge allows the Government to recover some, or all, of any Child Benefit claimed where the annual taxable income or the claimant or the claimant’s partner exceeds £50,000. To keep your taxable income below that threshold, you could reduce it by exchanging salary in return for employer pension contributions, or by making personal pension contributions.
Use up your Capital Gains Tax (CGT) allowance
The majority of individuals have an annual CGT allowance of £12,300. Therefore, capital gains on investments up to this amount are tax-free before the 5th April 2022.
One way of utilising the allowance is to sell and then buyback stocks and shares. This provides an opportunity to increase the base cost of the shares thereby reducing the capital gains tax payable on the further sale of the shares in the future.
The repurchase will need to be delayed for more than 30 days, or made by your spouse, civil partner, or ISA to benefit from this tax advantage, so make sure to leave enough time before the end of the tax year!
Our expert team of accountants are ready to help with all aspects of your tax planning needs. If you wish to discuss any of the topics covered in this article in greater depth, please do not hesitate to contact your client manager. Alternatively, give us a call at the office on 01257 255521 and we’ll be more than happy to help.
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