Tax Year End Planning Checklist

With 2022 started, it is already time to start thinking about utilising your tax allowances. 

The Treasury has a large deficit to make up and although taxes may not have increased, the combination of inflation and the Chancellor’s freeze on allowances may mean that you will find yourself paying more to the taxman – in income tax, NI, capital gains or even potentially inheritance tax.

But there are ways to reduce the share of your money that the government can take.

As well as tax planning for the current tax year, it’s important to put in place strategies to minimise tax throughout the next tax year and most will have the greatest impact if implemented before a tax year begins.

At Continuum we have put together a checklist – with tax topics you may want to check now.

Income tax

If you reduce your taxable income to below £150,000 you avoid 45% (or additional rate) tax., while reducing income below £ 50,271 will take you out of higher rate (40%) tax and into basic rate at just 20%.

Increasing Pension contributions is one of the simplest ways to reduce your taxable income. Paying more into your pension is usually a good idea as long as you do not exceed the £40,000 annual limit, especially as instead of taking your money, the taxman starts contributing with you.

For high earners, the personal allowance reduces by £1 for every £2 for those with adjusted net income in excess of £100,000. This means there will be no personal allowance available once adjusted net income exceeds £125,140. Making extra pension contributions not only increases pension provision, but for those who may be subject to a reduced personal allowance a personal pension contribution could claw back some of this allowance giving an additional tax saving.

You can also transfer income to your spouse or civil partner to make full use of their personal allowance. This is £12,570 in both the current tax year and for 2022/23. 

Capital gains tax

Capital gains tax planning may make it possible to reduce your tax obligation by carefully timing the disposal of an asset. Correctly done, this can help maximise use of this year’s annual exemption (currently £12,300). Any amount unused cannot be carried forward – it is a case of use it or lose it.

Again, it may be possible to reduce CGT by transferring your assets to a spouse.

Savings and investments

Savings income and dividends from investment can both be liable to tax, but there are some simple ways to reduce your tax liabilities, or even eliminate them altogether.

First, are you making full use of your personal savings allowance? This is £1,000 for a basic rate taxpayer and £500 for anyone who pays higher rate tax. This means that married couples and civil partners have a maximum of £2000 between them. 

Investments are more complicated. The Dividend Allowance means that you won’t have to pay tax on the first  £2,000 of your dividend income, no matter what non-dividend income you have. You can mitigate your tax by protecting your investments with an ISA. You have a £20,000 ISA entitlement this tax year and another after April, meaning that a couple can protect up to £80,000 of investment from the taxman by arranging ISAs at the right time. 

Pensions

Because of its special tax status, a pension is a particularly attractive investment and it makes very good sense for most people to use their pension entitlement to the full. This is subject to an annual allowance of £40,000 and a lifetime allowance of, currently £1,073,100. You will usually pay tax if your pension pots are worth more than the lifetime allowance, so it makes sense to look closely at your current pension pot and ensure that you are still within the allowance. If you are in danger of exceeding it, it could be time to look at other types of investment to prepare for your retirement. 

You might be able to protect your pension pot from reductions to the lifetime allowance.

Inheritance tax

You may not have to pay inheritance tax on your estate, but your loved ones probably will. 

Anything you can do to reduce the value of your estate will reduce the amount the taxman can help himself to on your death. 

You can make gifts of up to £3,000 each tax year as part of an annual exemption. If you have income that is surplus to your needs, you could also make regular gifts from this income.

However this is subject to current HMRC legislation.

You could also pay premiums into a whole of life policy in trust to provide for any inheritance tax liability.

Getting some expert help

Managing tax is inevitably difficult, thanks to the mountain of legislation that has built up over the years.

If you are ready to start climbing that mountain – and start keeping more of your money away from the taxman – you need some expert help.

At Continuum we have the expertise you need. 

Calling us now, before the end of the tax year could be a very wise move. 

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement or investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.

The Financial conduct authority does not regulate taxation advice

*Accessing pension benefits early may impact on the level of retirement income and may affect your entitlement to certain means tested benefits.

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