Your end of tax year checklist
As the tax year end approaches, now is an important time for us to help our clients review their finances and make the most of tax planning opportunities. Whether it’s maximising pension contributions, using ISA allowances or gifting to family or charity, careful planning could help to mitigate tax liabilities and move you closer towards achieving your goals.
Here, we’ve put together a checklist of 10 tax year end points we are considering and working through with our clients prior to 5 April.
Before taking action, we recommend that you speak to a financial adviser to ensure anything you do is appropriate for your circumstances. And if you would like to speak to a financial adviser for the first time, please do get in touch with Holden & Partners.
1. Use your ISA allowance
The current individual savings account (ISA) limit of £20,000 will be frozen until April 2030. However, using your ISA allowance as far as possible every year remains important as any income, whether dividends or interest, is tax free, and so are the capital gains.
Additionally, many ISAs are now ‘flexible’, which means that any money withdrawn in the current tax year can be replaced before 5 April on top of the £20,000 allowance. But each ISA provider is different, so it is important to know their rules before making additional payments.
Could now be a good time to invest in a cash ISA or a stocks and shares ISA, or add to your existing investments?
2. Pay into your pension
We all know the importance of putting money away for the future, but did you know that investing into your pension is one of the most tax-efficient forms of saving? Not only is there the potential to receive tax relief on your contributions up to the highest level of income tax you pay, but you also benefit from tax-free growth on investments within the pension itself.
What’s more, contributing to a pension could move you into a lower income tax bracket, reinstate your personal allowance (see our tip no.8) or help you keep more child benefit payments.
In the current tax year, up to 100% of an individual’s UK earnings can be contributed to a pension to receive tax relief, subject to the annual allowance of £60,000. Any unused allowance from the previous three tax years can also potentially be ‘carried forward’ to increase the amount you can save.
If you’re a business owner, taking profits as pension contributions could also be a highly tax-efficient way of boosting your retirement savings whilst reducing your overall tax bill. By making an employer pension contribution, both income tax and National Insurance can potentially be saved. On top of this, pension contributions from a business are usually an allowable expense for corporation tax.
However, pension allowances can be complicated. There are important considerations for those who have drawn income from their pension and those whose income exceeds £200,000.
3. Consider your capital gains
The annual exempt amount for capital gains tax (CGT) now stands at just £3,000, having reduced from £12,300 just two years ago.
This means capital gains planning is more important than ever, and so for our clients we check the position of their investments and potentially realise gains within the exempt amount in order to shelter as much of a portfolio as possible within tax-friendly wrappers.
Equally, realising a loss that can be carried forward indefinitely (and reduce gains in future years) can be an important step to take.
4. Top up your State pension
This year, there is a unique opportunity to top up old gaps in your State pension entitlement by making voluntary National Insurance contributions.
Typically, somebody needs 35 years of contributions to qualify for the full State pension when they retire. It is possible to pay voluntary National Insurance to fill gaps in your record (for example, if you weren’t working or lived out of the country), but ordinarily gaps can only be filled from the past six years.
If you contact HMRC before 5 April, however, it is possible to fill any gaps from the past 20 years. This opportunity will close from the new tax year, making it vitally important to fill older gaps in your record while you still can.
5. Think sustainably
If you’re reviewing your finances, it could be a good opportunity to consider investing sustainably. In our weekly shop, many of us reach for a brand that we know is attempting to do good for the environment or society in some way, but it can be easy to forget that where our money is invested is one of the biggest choices any of us can make to align our investment with our values.
At Holden & Partners, we’re experts in advising people on sustainable and responsible investments and why they make sense; not just for the planet, but for your pocket too. We offer a variety of sustainable options for you to consider.
6. Consider gifting
If you’d like to give money to loved ones and see them enjoy the benefit of your gift, it is possible to do so while also reducing future inheritance tax (IHT).
You can gift a total of £3,000 each tax year (to one person or split between several) without affecting the value of your estate. Similarly, if you’d like to make gifts for a big life event, such as a wedding, these can also be IHT efficient.
For more info on the rules for gifting, look here.
Many people are familiar with Gift Aid, but another effective way to give to charity is to transfer investments or property. The value of the donation is deducted from taxable income, exempt from CGT and exempt from IHT – all while enabling you to support a cause close to your heart.
7. Check if you qualify for marriage allowance
This little-known benefit for couples enables the lower earner to transfer £1,260 of their personal allowance to their wife, husband or civil partner, reducing their tax by up to £252. To benefit as a couple, the lower earner must have an income under the personal allowance of £12,570.1
You can calculate any potential tax savings here.
8. Reclaim your income tax personal allowance
Those earning between £100,000 and £125,140 suffer an effective tax charge of 60% on this slice of income as their income tax personal allowance is removed. Making pension contributions or gifting to charity can help to reclaim the personal allowance, lowering the overall tax paid.
9. Save for your children
Children can benefit from tax-efficient saving too. The junior ISA allowance is £9,000 per child under the age of 18.2 Although access to the funds is given up, the parent keeps control over how it is invested. Once the child reaches age 18, the account becomes an adult ISA and is the child’s property outright.
You could also consider investing for your child or grandchild’s retirement by setting up and making regular contributions to a pension.
10. Further options
Once other allowances are used, additional investment options such as venture capital trusts (VCTs), enterprise investment schemes (EIS) and seed enterprise investment schemes (SEIS) might become appropriate. These schemes are higher risk but offer tax incentives to encourage investment into smaller UK companies. On top of income relief of 30% (50% for SEIS), VCTs benefit from tax-free dividends, while EISs can be used to defer a CGT liability and may qualify as IHT-exempt if held for two years.
These investments are generally only suitable for certain individuals who can afford to take a high level of risk with their capital and are seeking to invest for at least five years, but ideally longer.
We’re here to help with financial planning and sustainable investments. Why not get in touch for a chat?
Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this communication is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute, advice. You should not take any action without having spoken with your usual adviser.
1 Marriage Allowance – GOV.UK (www.gov.uk)
2 Junior Individual Savings Accounts (ISA) – GOV.UK (www.gov.uk)