End of tax year planning checklist
Each of us has a certain amount of income we can earn each year without paying tax
The end of the tax year on April 5 is just a few weeks away, so if you want to make the most of this year’s annual allowances and reliefs, you’ll need to get your skates on.
Here’s our rundown of some of the tax year end opportunities you might want to consider using.
Annual ISA allowance
You can shelter up to £20,000 from the taxman in an ISA this tax year. If you don’t use this year’s allowance it will be gone for good when the tax year finishes, although you’ll have a new £20,000 allowance in the 2022/23 tax year.
You can choose to put your allowance into a cash ISA, or put it into a combination of investments, including funds, shares, gilts and bonds through a stocks and shares ISA, or you can invest in peer-to-peer lending through an innovative finance ISA.
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Many people are understandably nervous about using their ISA allowance to invest in a stocks and shares ISA given current market volatility, but you can do so without having to rush into any decisions right now.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, explained: “If you’re not keen to invest your entire ISA allowance right now, you can still protect your allowance. You can open a stocks and shares ISA and park the money in cash, then gradually drip feed it into stock market investments when it suits you best.”
Personal allowance and personal savings allowance (PSA)
Each of us has a certain amount of income we can earn each year without paying tax, known as our personal allowance. For the 2021/22 tax-year, this amount is £12,570, and it will remain at this level in the 2022/23 tax year.
Your personal allowance is in addition to the Personal Savings Allowance (PSA), which means that most savers don’t have to pay income tax on any interest they receive.
Your PSA depends on which income tax band you are in, with basic rate taxpayers entitled to a £1,000 allowance, while higher rate taxpayers receive a £500 allowance. Additional rate taxpayers are not eligible for a PSA.
Lots of couples hold savings accounts in joint names. However, if one of you is a higher rate or additional rate taxpayer and the other doesn't pay tax at all, it may be more tax-efficient to put the account into the non-taxpayer's name. Bear in mind though that this will give that partner full ownership of the account, so you'll need to make sure you're both happy with this.
Pensions
If you have any spare savings available, you may want to consider topping up your pension before the end of the tax year to benefit from tax relief.
Each year you can pay in up to 100% of your r earnings into a pension or the annual allowance (whichever is lower) and receive tax relief. This tax year and next tax year the annual allowance is £40,000, although if you’ve already accessed your pension your allowance will be much lower at £4,000.
Emma Keywood, product manager at investing app Dodl by AJ Bell, said: “Pensions benefit from tax relief at 20% for basic-rate taxpayers, but higher and additional rate payers can reclaim an additional 20% or 25% tax relief respectively through their tax return. That means for a basic-rate taxpayer every £1 in your pension only costs you 80p and for a higher-rate taxpayer every £1 in your pension only costs you 60p.”
Inheritance tax
Inheritance tax is charged at 40% and applies to the proportion of your estate valued above £325,000 (£650,000 for married couples) when you die
Everyone in the 2021-22 tax year has a £3,000 annual inheritance tax gift exemption which can be carried forward one year. That means if you haven’t used your annual allowance last year, you make gifts to family and friends of up to £6,000 this tax year. If a gift is made more than seven years before your death to an individual, there will be no tax payable.
Tax rules can be complicated, so if you’re not sure which allowances to make the most of, you may want to seek professional financial advice.