If it makes sense to use your tax allowances at the end of the financial year, it makes even more sense to use them at the start. Here's a run-down of some actions you could be taking now that the 2021-22 tax year has begun.
Pensions
If you're thinking of making a lump sum pension contribution, why not make it now? If it's a personal pension payment you'll benefit from an extra tax payment paid into your plan in the form of basic rate tax relief, and the whole amount will grow tax-free for another year.
You'll only receive the tax relief if you have sufficient earnings to justify the pension payment, so you may prefer to wait until nearer the end of the tax year before going ahead if your earnings are uncertain. Even so, you can still invest up to £3,600 in your pension whether you are earning or not, and (here's the good bit) it will only cost you £2,880 - the extra £720 will be paid in by the Government.
Most people qualify for this tax relief, including children. There are some caveats, though, so make sure you speak to your adviser before you go ahead to make sure you're doing the right thing.
Individual Savings Accounts (ISAs)
There is no change to the amount you can invest in ISAs, it's still £20,000 for this tax year. If you have surplus savings or investments it makes sense to make use of your ISA allowance immediately, gaining another year of tax-free growth and income. Why wait until the end of the tax year to use your allowance when you could be gaining the benefit now?
Capital Gains Tax (CGT)
The amount of gains you can incur before you have to pay CGT has remained at £12,300 for the 2021-22 tax year. If you have investments that have been affected by the decline in asset prices as a result of the coronavirus, it may be worth selling some shares or funds now to crystallise losses, even if you intend to hold on to your portfolio for the long term. As and when your portfolio recovers, you can then use these losses to set against future gains and keep your tax bill down.
Inheritance Tax (IHT) and Gifts
There were no further changes to IHT in the Budget. Last year Main Residence Relief reached its maximum £175,000 in addition to the existing basic inheritance tax-free allowance of £325,000. For married couples or civil partners owning their home who pass on their assets to a direct descendant, this means that the combined tax-free amount is now £1 million.
That still leaves a significant number of estates liable for tax, and if you're nudging up to this figure then you should consider using your Gift Allowances. You can give away up to £3,000 each tax year and this amount won't be included in your estate for Inheritance Tax. If you haven't made use of this allowance in the last tax year, you can carry it forward to this year too. In addition, you can make individual gifts of up to £250 to as many people as you like and they aren't included either.
We recently dealt with a couple who had three children and seven grandchildren. They hadn't made any gifts before, so by using both their previous year's allowances they were able to give £4,000 each to their children and £500 to each grandchild, a grand total of £15,500, all of which will avoid Inheritance Tax whenever they pass away.
Business Planning
If you're in business, you might want to consider how best to structure your remuneration to achieve the results you want. For example, if you are building your business to sell you may want to maximise profits to be able to put forward an attractive proposition to potential purchasers. If, however, you are in a growth phase then you'll want to know about the newly introduced Capital Allowances that enable you to make big tax savings on investment into plant and machinery.
Getting Good Advice
Are you looking to retire and need advice, are you planning the next stage of your life, or do you need help creating financial security for your family? Either way, good advice can make a real difference to your future plans. Here at Woodgate Financial Planning, many of our clients have been with us for decades, trusting us to manage, protect and grow their wealth in order to find financial freedom. If you're looking for advice about your pension, your taxes, or your retirement, why not give us a call today to find out how we can help you?
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