End of Tax Year Planning Checklist (2021/22) With the end of the tax year approaching, many people including entrepreneurs, high-net-worth individuals, retirement planners and retirees will be thinking about getting their finances in check. The last year has certainly provided plenty of challenges, and although your finances may not have been at the forefront of your mind, it’s still worth taking some time to consider the tax planning opportunities that are available.
With that in mind, this checklist covers everything you need to consider before 6 April 2022 to put you and your family in the best possible position.
Key tax planning areas to consider As well as optimising your tax planning for the current year (2021/22), it’s also important to take the time now to think about strategies to minimise tax for the year ahead (2022/23). Tax planning strategies usually are most effective when implemented before the tax year begins. The following are the key areas to consider. Income tax Personal income of between £100,001 and £125,140 is taxed at an effective rate of 60% due to the loss of the personal allowance, while income over £150,000 is taxed at 45%. Child Benefit is tapered for incomes between £50-60k so for a taxpayer with two children who receives Child Benefit of £1,827.80 per year (2021/22 rates), the effective rate of tax is 58.3% in this income bracket, while for those with three children who receive Child Benefit of £2,555.80, the effective rate of tax is a whopping 65.6% for income between £50-60k. You should consider steps to reduce your taxable income to below these levels if you can, in order to avoid the higher rate of tax. Increasing your pension contributions might be an effective way to do that. Alternatively, you could consider:
Capital Gains Tax Most individuals have a Capital Gains Tax allowance of £12,300 for the 2021/22 tax year. Any assets that are sold at a loss can reduce gains for the year or be carried forward and set against future capital gains. Importantly, any of the annual exemption not used cannot be carried forward and will be lost. Assets can be transferred between spouses and civil partners tax efficiently to ensure both exemptions are used fully. You can also choose to defer the Capital Gains Tax payment for a year by making a disposal after 5 April 2022. Alternatively, you can use two annual exemptions in succession making one disposal before 6 April 2022 and one just after. Gift Allowances Individuals have an annual tax-free gift allowance of £3,000. This can be carried on for one year but will be lost if it remains unused after that. If you have an annual exemption that you’ve carried forward from last year, it must be used before 6 April 2022. Individuals can also make as many gifts of up to £250 per recipient as they like per tax year, free from Inheritance Tax (IHT). However, that only applies if the recipient has not received any part of your £3,000 IHT-free gift allowance.
Other steps you can take to reduce your income tax liability include:
• Ensuring married couples / civil
partners both have sufficient income to use their full personal allowance: £12,570 in 2021/22, or claim the Marriage Allowance where it is not possible to redistribute income. The result will be tax relief of up to £252 for the current year. No tax is payable on transfers between married couples or civil partners, unless you are formally separated, in which case specialist advice is required. Replace investments that provide taxable income and gains with tax-free investments such as ISAs or investment bonds that allow valuable tax deferment.
• Redistribute investment capital between spouses / civil partners to reduce the tax incurred on income
and capital gains. No tax is payable on transfers between married couples and civil partners.
• Transferring an income-generating asset to a spouse with lower income
• Deferring income to a later tax year
• Making Gift Aid payments
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