Annual allowance for pension contributions
Tax-efficient investments Income tax relief is available to reduce your tax liability on the following investments: Venture Capital Trusts (VCTs) - Investments of up to £200,000 per year qualify for income tax relief at 30%. There’s no capital gains tax payable on any profit made when selling the investment and dividends are received tax-free. Enterprise Investment Scheme (EIS) - Annual investments of up to £1 million in qualifying companies attract income tax relief at 30% (or up to £2 million if at least £1 million is invested in knowledge intensive companies). If the investment is held for over three years then any capital gain is free from CGT. Seed Enterprise Investment Scheme (SEIS) - Investments of up to £100,000 per tax year can be made in start-up companies that qualify for the SEIS. Income tax relief is available at 50%. No CGT is payable on disposal if the investment is held for more than three years. Both EIS and SEIS investments can be carried back to obtain income tax relief available but not used in the 2019/20 tax year.
Electric cars If you are thinking of switching to an electric car for business use, the tax benefits are well worth exploring and include enhanced capital allowances, lower benefits in kind (determined by the vehicle’s CO2 emissions and fuel type) and £0 road tax for 100% electric vehicles until at least 2025. You will be able to benefit from capital allowances, car benefits in kind (determined by the vehicle’s CO2 emissions and fuel type) and zero tax on fuel benefits in kind. Gift Aid Tick the box to say you are a UK resident and taxpayer when making Gift Aid payments and you’ll receive 20% or 25% of the donation as a reduction in your tax liability. To make the most of Gift Aid, the person with the highest tax rate in your family should ideally make the payment. Your financial future is in safe hands At Scrutton Bland, ensuring that our clients and their families get the best outcome from their efforts is part of the process of providing clear and effective independent financial advice to help you maximise your wealth and make informed tax planning decisions. Whether you are a business owner or private individual, making informed decisions and utilising the allowances available to you can make a dramatic difference to your wealth in the long- term. With tax and financial planning experts waiting to work together on your behalf, the first step on this long-term relationship is to get in touch to arrange a free, confidential consultation at a time that works for you.
Investments in your pension are free from income tax and capital gains tax, but there is a limit to the amount you can pay in. The current standard tax-free pension allowance is £40,000 or 100% of earned income, whichever is higher. The carryforward rules allow you to make use of any annual allowances that were not used during the last three years. That makes 5 April 2022 the last opportunity to use unused allowances from 2018/19. If your adjusted income ie your taxable income plus employer pension contributions, is over £240,000, your annual tax-free pension allowance falls away by £1 for every £2 of income. There is a minimum tax-free pension allowance of £4,000 for those with adjusted income of more than £312,000. You can also pay up to £3,600 into a pension pot for your spouse, a civil partner or a child and benefit from basic rate tax relief on the contributions.
Savings and investments
• Ensure the savings income for both individuals in a married couple or civil partnership is sufficient to use their full £500 or £1,000 personal savings allowance and £2,000 dividend allowance. • Shareholding directors of private companies can pay themselves up to £2,000 of dividend income for 2021/22 tax-free. • If interest on investments or savings is due to be paid just after 5 April 2022, closing the account before the end of the tax year can bring the interest forward. That will allow you to use up any surplus personal savings allowance you have for the current tax year.
Additional tax planning areas to consider
While the points we’ve covered are likely to be relevant to most people, there are also some specific tax planning areas that may apply to others: Trading and property allowances Two £1,000 tax-free allowances are available, one for income from property and the other from trading and miscellaneous income. They can reduce your tax liability if you generate a modest income, for example, by renting out a room on Airbnb or selling items on eBay or Amazon. Employment If you have had to work from home due to Covid-19, you can claim tax relief worth up to £125 for the additional household expenses incurred such as heating and business calls. Tax relief can also be claimed on your usual business expenditure such as professional subscriptions and business miles travelled in your own vehicle.
ISA allowances You should increase your savings if
necessary to make the most of the £20,000 tax-free ISA allowance per person. Married couples can invest £40,000 over the year with no capital gains tax or income tax to pay. Any unused allowance cannot be carried forward.
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