The tax year end is approaching- it’s time to start your tax planning

The tax year ends on 5 April 2021. Income after that falls into the next tax year ending in 2022. So with the tax year end fast approaching, it is not too late to make the most of what is available in terms of tax exemptions and benefits.

Please be aware that tax rules and legislation change over time meaning any benefits of tax breaks and shelters depend on your own particular circumstances.

Here are some things to consider before 5 April 2021:

Use Your Pension Allowance

Contributions to your pension receive between 20-25% tax relief meaning this type of planning is one of the most efficient 5th April is your last opportunity to contribute this tax year.

Use Your ISA Allowance

Up to £20,000 from income and capital gains tax can be sheltered using your ISA. It is such an effective way to save your investments from tax you need to remember to use it before 5 April 2021 or it will be lost forever. Due to its simplicity, over 12m people in the UK opened an ISA last tax year.

An example of an ISA from the Halifax makes the following points

Some cash ISAs are flexible. This means that you can withdraw and replace your money without affecting your yearly ISA allowance, as long as you replace the funds within the same tax year.

  • if you pay a total of £10,000 into a cash ISA this tax year, you would then have another £10,000 that you could pay in to reach your maximum yearly £20,000 allowance.

Some cash ISAs are flexible. This means that you can withdraw and replace your money without affecting your yearly ISA allowance, as long as you replace the funds within the same tax year.

  • For example, if you pay a total of £10,000 into a cash ISA this tax year, you would then have another £10,000 that you could pay in to reach your maximum yearly £20,000 allowance.
  • If you then withdraw £2,000, leaving £8,000 in your cash ISA, you could put £2,000 back into your account and still have £10,000 of your allowance remaining for the tax year.

Consider A VCT (Venture Capital Trust)

A VCT aims to make money by investing in other companies. These are typically very small companies which are looking for further investment to help develop their business.

VCTs offer a chance to invest in small, often risky but with a high potential return, UK companies as a long term investment. Due to the risk of such investments, the investor can receive a tax rebate of up to 30%.

Reduce Your Inheritance Tax Liability

£3,000 can be gifted from capital each tax year, this is known as your annual exemption.

Also, you have the ability to carry over any unused amount from the tax year before.

Gifts worth more than the £3000 allowance in any tax year might be subject to Inheritance Tax.

Use Your Capital Gains Tax Allowance.

You can realise up to £12,300 worth of gains without paying any tax. Shares and funds that are being held outside a tax wrapper could be sold and then reinvested into an ISA or SIPP.  Alternatively, you could consider timing the disposal of assets either side of the tax year deadline to make use of the 2020/21 and 2021/22 allowances in a short period of time.