A Guide to End of Year Tax Planning

The current tax year 2021/21 comes to an end on 5 April 2021, so the next few weeks are your last chance to save money with some careful tax planning. Read on to learn what tax breaks might be available to you, and how to use them to your advantage.

Personal allowance

If your spouse is a lower rate or non-tax payer, it is possible for them to transfer 20 per cent of their unused personal allowance to you. This could save you up to £250 in tax.

You will need to apply to transfer the allowance. This is easiest done via your Government Gateway account, although you can telephone HMRC to organise the transfer if you prefer.

If you have income-producing assets, for example buy-to-let property, investments or savings, then you could transfer these into the name of your lower or non-tax paying spouse. This will reduce your overall tax liability. There are no Capital Gains Tax liabilities between spouses.

ISA allowance

Have you made full use of your tax-efficient Individual Savings Account (ISA) allowance for this current tax year? If not, and you have cash or other savings, remember that you can put up the current allowance limit into an ISA before the end of the tax year so that you won't pay any tax on whatever is made.

This allowance is provided on a 'use it or lose it' basis, which means if you don't use it in full in one tax year, you cannot carry it over to the next tax year.

Tax-free pension allowance

The standard annual pension allowance for the current tax year 20/21 is 100 per cent of earner income, or £40,000, whichever is higher. If your income is over £240,000, or you have claimed pension benefits through a flexi-access drawdown arrangement preciously, then this allowance will be reduced.

Higher rate or additional rate tax payers with enough relevant UK earnings are able to claim the additional tax relief. It is also possible to carry forward any unused annual allowance from the three previous tax years, providing you were a member of a registered pension scheme during the years for which you wish to optimise contributions.

Inheritance Tax

The standard Inheritance Tax (IHT) rate is 40 per cent and is only charged on the part of the estate that is above the threshold.

It is possible to gift up to £3,000 in any tax year in order to reduce the IHT liability. Again this is a 'use it or lose it' allowance, although in this case it can be carried forward for one year. You may still have an unused gift allowance for 2019/2020 which you can use up to 5 April 2021. Combining the gift allowances of spouses can potentially remove £12,000 from a joint estate before 5 April.

Capital Gains Tax

The annual Capital Gains Tax (CGT) allowance for the tax year 20/21 allows you to make gains on investments up to £12,300 tax free. Any gains over this allowance are charged at either 10 per cent or 20 per cent, with disposals of residential property taxed at 18 or 28 per cent, depending on the individual's other total taxable income in the year the gain arises.

Residential property that has been your main residence for the entire duration you have owned it, that has never been let, that has not been used for business purposes and where the grounds are less than 5,000 square metres will qualify for Private Residence Relief.

Married couples can usually use each other's CGT allowances by transferring assets before they are sold.

Tailored guidance for businesses from Office Assistants

Whilst many tax related matters require specialist guidance from relevantly qualified tax advisers, there are certain, simpler steps that business owners and tax payers can take to make the most of their tax allowances, such as transferring a personal allowance between spouses.

If you are looking for support with any aspect of your personal or company taxation obligations, you are welcome to get in touch with our helpful experts.

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