With the end of the 2021/22 tax year fast approaching you only have a short time left to ensure you maximise your allowances where possible. This article will give you five things you need to think about before the end of the tax year. The list is not exhaustive and if you are unsure on any of the below we would recommend you seek advice from an independent financial adviser.
Contribute to your pension
The higher your individual marginal tax rate, the more tax relief you will receive on pension contributions. If you’re a basic rate taxpayer, for every £800 you pay in, the government will gross it up to £1,000. If you pay tax at the higher or additional rate you can claim back up to an additional 20%, or 25% on top of the 20% basic rate tax relief, through your self-assessment tax return. The maximum you can pay in and receive tax relief on is £40,000 per tax year, although in some instances you may be able to “carry forward” unused allowances from previous tax years.
If you work for a company on an employed basis, see how much they pay in currently and to what limit they match your contributions. It might be a bit late this tax year but it’s definitely worth checking for next year, you could be leaving money on the table.
Use your ISA allowance
Under current legislation you can carry forward unused pension allowances from the last three tax years into the current year. There are some additional things to think about when using carry forward, but that will be the focus of another blog.
ISAs are different, if you do not use the allowance, then you lose it! ISAs benefit from tax free growth and no Capital Gains Tax when selling investments inside the ISA, so it makes sense to use your ISA allowance. If you don’t want to invest just yet, it is still worth putting your annual allowance into a Cash ISA this year, you can then transfer the Cash ISA into a Stocks & Shares ISA if you do decide to invest later down the line. This will ensure your investments are made inside the ISA wrapper.
You can only open one type of ISA in each tax year, so you cannot open a Cash ISA with one bank in say September 2021 and open another with a new bank in March 2022, you either need to top up your existing ISA, transfer it to a new provider or wait until the next tax year to open a new ISA with another bank. The same applies for Stocks & Shares ISAs, although you can open a new Cash ISA and a new Stocks & Shares ISA in the same tax year. You just cannot open two Cash ISAs or two Stocks & Shares ISA in the same tax year.
Use your children’s ISA allowances
If you have maximised your annual ISA allowance and want to tax efficiently invest towards your children future then you can contribute up to £9,000 per child into a Junior ISA (JISA) for them.
Just like an ISA for an adult, returns on investments within a Junior ISA are free of UK income tax and capital gains tax. A word of caution, your children can access the money in full at age 18 and are able to withdraw funds at their discretion. You will need to decide if you are comfortable with this.
Use your CGT allowances
If you hold a significant amount of company shares in RSU (Restricted Stock Units) arrangements, you may be selling these down within your annual Capital Gains Tax (CGT) allowances already and diversifying the proceeds into other investments. If you are married, you have the opportunity to transfer these into your partners name and they can sell these down to maximise their Capital Gains Tax (CGT) allowance. The CGT allowance for the 2021/22 tax year is £12,300 each, between you both you could incur gains of £24,600 without incurring a tax liability.
Even better if you haven’t used your ISA or pension allowances you can use this money towards funding those accounts and benefit from the tax relief mentioned above.
Check if your pension allowance is tapered
We have written on this previously and unfortunately a number of clients have come to us when it is too late. I would refer you to our tapered annual allowance article to see if this might effect you here. It might be a little late in the day to check this now, but going into the new tax year you may want to consider your options. If you are effected by the taper, your employer may offer additional compensation in lieu of pension contributions, but each situation should be analysed on it’s individual merits. If you are tapered and you’ve contributed over your tapered annual allowance, then you may need to pay back some of the excess tax relief.
There are number of other things you might want to consider, such as using your annual gift allowance, carrying forward unused pension allowances and perhaps donating to a charity of your choice. These are just five of the things you need to think about before tax year end, that will help you make the most of your money.
If you would like to discuss any of the above with a local independent financial adviser, then please get in touch. Not local? We’re always happy to meet for a cuppa via video conferencing.
T: 01268 944122
E: p.denning@sterlingandlaw.com
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