Client NewsletterSpecialist Tax News

Are you making full use of tax planning?

Get your affairs in order

No one wants to pay more tax than they are required to and yet every year hundreds of thousands of taxpayers miss opportunities to reduce their tax bill.

The clock is now ticking down to the end of the tax year in April, and with many experiencing a squeeze on living standards, there has never been a better time to plan for tax.

There are a number of saving to be made and our expert team have outlined some of these below:

Dividend Tax and Remuneration

Businesses and their owners need to consider their current position regarding the following before year-end:

  • Dividend taxation – Have you used the zero per cent Dividend Tax Band of £2,000?
  • Capital Gains Tax – Have you used your annual exemption for 2021-22 of £12,300?
  • Business Asset Disposal Relief – Formerly known as Entrepreneur’s Relief, the lifetime limit for qualifying gains has been reduced from £10 million to £1 million.
  • Salaries – Consider payment of salaries to owner-managers at tax-efficient levels

Personal Tax Planning

There are many ways that you can cut your personal tax bill, including:

  • Inter-spouse transfers –For individuals, whose annual income is between £100,001 and £125,000 this is an ideal way of reducing your tax liabilities.
  • Exchange your salary for benefits – Consider exchanging part of your salary for payments into an approved share scheme or additional pension contributions, to take you below the £100,000 threshold.
  • Dividends and bonuses – Pay these early, so that they fall into the current tax year.
  • Directors’ Loans – Have you used the tax-free interest amount on any loans to your business? Depending on your income level, you could save up to £1,000.

Inheritance tax

As well as focusing on the current year-end, you need to make sure you have plans in place for the future, especially if you are among the growing number of people to be affected by inheritance tax.

Here are some steps you can take:

  • Charitable gifting – If you leave at least 10 per cent of your net estate to charity a reduced rate of 36 per cent rather than 40 per cent applies and could save your family money.
  • Annual gift allowance – You can give away a total of £3,000 worth of gifts, per person each tax year without them being added to the value of your estate. This allowance can be carried over two years if it is unused.
  • Gifts out of income – You can also make regular gifts out of your income which are tax-free if they are used for normal expenditure, which could include paying for a grandchild’s school fees.
  • Passing on your pension –You should revisit your current plans and update your Will to ensure that your family receives the full benefit of any remaining pension fund.
  • Trusts: There have been several changes to the treatment of trust funds recently which are complex and could affect some people. Your accountant will guide you.

Pensions and Tax

No one wants to see their hard-earned pension targeted by the taxman, so you should consider the following:

  • Protecting your pension – The Lifetime Allowance (LTA) has changed in recent years and currently stands at £1,073,100 for 2021/22.
  • Annual pension allowance –You can invest up to £40,000 a year into a pension tax-free. This amount can be carried over three years, allowing you to use unused allowance to top up your pension.
  • Stakeholder pension – All UK residents including children can make annual net contributions of £2,880 per year (£3,600 gross) regardless of whether they have any earnings.
  • Pension drawdown – If you are 55 or over, you may be able to start drawing down pension benefits now from a personal pension such as a SIPP, even if you are still working.

Tax-Efficient Investments

There are a wide range of tax-efficient investment options, which can help to reduce your liabilities.

Are you using, or have you considered, the following?

  • ISAs – including Help to Buy ISAs, Lifetime ISAs (LISA), Stocks and Shares ISAs and Child ISAs
  • Share Schemes
  • EIS and SEIS
  • Venture Capital Trust investment
  • Community investments
  • Social Enterprise investments
  • Life Assurance bonds
  • Offshore bonds

Here to help

If you want to minimise the amount of tax you pay before the end of the tax year, please speak to our experienced team today.