It’s tax-time – how to prepare for April 5th

← NEWS - It’s tax-time – how to prepare for April 5th

April 5th is bearing down on us and at this time of the year, we encourage all our clients to take time to give their finances a review and make sure they’re not missing out on any allowances or tax planning opportunities.

To make it easier, we’ve listed a few top tips and easy wins we’d advise all our clients to take in the run-up to the end of tax year deadline:

Have you used your ISA this year?

Each tax year, individuals have an available ISA allowance of £20,000. This allowance is a “use it or lose it” as you are unable to carry any of it forwards. ISAs are a great tool that allow your money to grow tax free and therefore work harder for you. The allowance can be spread across cash ISAs, stocks and shares ISAs and Lifetime ISAs (for those under 40 years old). If you have not used your ISA allowance this tax year and have excess money sat in your bank account earning little or no interest, don’t hesitate to contact us to discuss the potential benefits of Stocks and Shares ISAs. For clients already with a Stocks and Shares ISA, get in touch to top up your account.

Check your pensions are tax-efficient

Pensions can be a very tax-efficient way of saving for your retirement with contributions attracting tax relief by way of an additional amount paid into your pot by the government. With greater flexibility on retirement, they are a more attractive choice than ever for those saving for retirement.

Unlike ISAs, if you don’t use your annual pension allowance (100% of your annual earnings, capped at £40,000) you can ‘carry forward’ the past 3 years’ unused allowance to make a lump-sum contribution. For anyone with excess cash sitting in a bank account, not necessarily working as hard as it could, your pension can be a fantastic tax-efficient investment.

For business owners, money in your business account can be used to make a substantial lump sum pension contribution for Directors, which is a great way of extracting money from the business tax free and benefiting from Corporation Tax Relief at the same time – a double whammy!

Make use of your gift allowance for Inheritance Tax (IHT)

Everyone has a nil rate IHT allowance of £325,000 on their assets, so anything beneath this threshold isn’t subject to an IHT charge. However, if your assets breach this limit a tax charge of 40% applies to the excess. HMRC allows gifts of £3,000 to be made each tax year which, if unused, can be carried forward from the previous year. A couple could therefore move up to £12,000 out of their joint estate before the end of the tax year.

Gifts from regular income are also allowed, but the rules are more complicated. If you are worried about inheritance tax or want to better understand the rules around gif allowances, please get in touch.

Get to grips with Capital Gains Tax (CGT)

Any assets you hold outside of a tax wrapper (such as an ISA or pension) can be subject to a CGT charge if sold or transferred. This tax can apply to stocks and shares, property, or other valuable items. Everyone has a tax-free CGT allowance of £12,300 for the tax year 2020/21. The rate of tax can be complicated to work out, but as a rule, basic rate taxpayers pay 10% and higher rate taxpayers 20% (18% and 28% respectively if a property is sold). You may be able to split the gain over 2 tax years to reduce your bill, or transfer assets to a spouse to make use of dual allowances. This can be complicated and is worth getting expert advice before you decide on a plan.

For our existing clients, we work hard to make sure that, where applicable, these allowances are used for you. Issues such as inheritance tax or investments held outside of tax wrappers are discussed at our regular client reviews. But if you want to know more about CGT, or you’d like to discuss any of the issues above, please get in touch.

Craig Croft-Rayner

Craig Croft-Rayner Craig is a Director and Financial Planner with 5 years of dedicated experience in the finance sector. Craig's commitment to excellence is evident as a proud member of the Chartered Insurance Institute and holds a diploma from the Personal Finance Society (PFS). He is currently undergoing training to achieve the esteemed Chartered Financial Planner status. Craig is passionate about empowering individuals to make informed financial decisions and achieve their financial goals.

Top Rated Financial Advisors