It’s that time of year. No, not spring, it’s just under a month until the end of the 2021/22 tax year.
You might have read articles in the press, you may have heard talk about the tax year end from friends. It happens every year, but what to do? I would suggest, as ever, if you have the available means, to utilise tax allowances, as best you can. For the vast majority of people, this will be primarily considering using ISA & pension allowances.
ISAs – Individual Savings Accounts. These are accounts that mean that any future gains, or income within the ISA are completely free from tax and equally, any withdrawals can be made tax free. I would suggest these are considered as savings vehicles for the medium-term. The annual allowance is £20,000 per adult, per tax year, meaning you could in theory, make a £20,000 contribution on the 5th April 2022 and a further £20,000 on the 6th April 2022 and therefore have £40,000 within an ISA, knowing that it is free from income & capital gains taxes.
Pensions – these are accounts to help you with your longer term aspirations. Almost everyone can save into a pension, from higher earners, to non-earners. As an individual, you’ll receive tax relief on the contribution made – if you contribute £100, your pension administrator will claim £25 from the government on your behalf. If you are a higher-rate tax payer (earning over £50,270) then you can claim a further 20% of income tax relief, by including the gross contribution on your self assessment tax return or contacting HMRC. If you’re a non-earner, you can still contribute and receive free money! You could contribute up to £2,880 and the pension scheme will again, top it up, in this example, to £3,600, yes, £720 of free money.
Main downsides with pensions is that you are tying up your money, depending on your age of course. When you get to the age (55+) when you can access your pension, you could take some of it (up to 25%) tax free, which is a great perk, beyond which, you can take an income from it.
GIAs – General Investment Accounts. Did you know you have an annual dividend allowance of £2,000 and an annual capital gains tax (CGT) allowance of £12,300? Are you making use of them? Many, many people are not. Why not? In theory, that’s another £14,300 of additional gains/income that could be tax free. A GIA is an account that facilitates the ability to invest your money and therefore, with any gains or dividends received, they could help utilise these dividend & CGT allowances.
There are other options, such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs) where you save income tax based on the invested sum (+ defer CGT in the case of EISs) but these are typically both higher risk than the majority of options noted earlier, as the principle for saving tax up-front, is predicated on the fact they’re investing in riskier businesses.
What can you do?
What should you do?
We can’t provide advice through the medium of a blog, but if you’d like a conversation with our team, get in touch, we’d love to hear from you.
Thanks for reading and