With the end of the tax year approaching on 5 April now is the perfect time to review your tax planning opportunities. National insurance and dividend rates are set to increase and a number of allowances expire at the end of each year, which if not used could be lost. We have listed below a number of items which might be useful for you to consider at this time of year:
- From 6 April 2022 the tax due on dividend receipts in excess of the £2,000 nil rate band will increase by 1.25% across the tax bands to 8.75%, 33.75% and 39.35%. It may be beneficial for business owners to accelerate dividend payments into the current tax year to take advantage of the lower rates currently available. However, care should be taken where increased dividend payments may take you into a higher rate of tax.
- Employees will also be hit by a 1.25% increase in national insurance contributions, increasing the main rate to 13.25%. If your employer offers a salary sacrifice scheme on say pension contributions, additional savings may be available from 6 April 2022 from joining this as a result of the national insurance increase.
- Have you utilised your available allowances for 2021/22?:
- ISA – the current ISA allowance is £20,000 per year and any unused allowance is lost at the end of the tax year if not used. ISA’s provide tax-free income and gains.
- Pension – the standard annual pension allowance is £40,000 per year which includes both gross personal and employer contributions, although this may be restricted depending upon your personal circumstances. Unused allowance can be carried forward for a maximum of three years but you will require enough earnings in subsequent years to utilise the carried forward amounts.
- Annual Exempt amount – this is your tax-free allowance for capital gains tax and is currently £12,300 per year. This allowance is lost if not used during the year so you may wish to consider splitting potential gains over a number of years where possible.
- No gain/no loss transfers – spouses and civil partners can transfer assets between them on a no gain/no loss i.e. no capital gains is due on transfers. Transferring part of an asset to your spouse or civil partner prior to sale, may mean they could take advantage of their annual exempt amount giving a total potential £24,600 of tax-free gains between you. In some cases your spouse or civil partner may also pay CGT at a lower rate if their overall income is lower resulting in further savings.
- Income tax planning – when income exceeds £100,000 your personal allowance starts to be clawed back giving an effective tax rate of 60% on income between £100,000 and £125,140. By making charitable donations or pension contributions you may be able to reduce your “adjusted net income” to under £100,000 and potentially avoid this high effective rate of tax.
- Child Benefit – where income of one parent exceeds £50,000, child benefit is clawed back at the rate of 1% for every £100 of income over the threshold. All child benefit is lost when income reaches £60,000. In the same way as with the personal allowance, charitable donations and pension contributions are deducted from your income when calculating the claw back, so making contributions could help keep you under the threshold and maintain your full child benefit entitlement.
- Tax reducing investments – certain investments such as SEIS, EIS and VCT schemes provide income tax relief at 30% or 50% of your investment and can reduce your tax bill accordingly. Advice on the financial implications of these options should be sought from an authorised financial advisor as your funds may be at risk.
- Marriage Allowance – where one spouse or civil partner does not use all of their personal allowance and the other is a basic rate taxpayer, you can currently elect to transfer £1,260 of the non-taxpayer’s personal allowance over to the basic rate taxpayer – saving £252 per year. You can also back date any claim by up to four years.
If you want more information on any of the above points, have any queries or wish to discuss your overall tax position in more detail please do not hesitate to contact us.