With two months to go until 5 April, now is the time to consider tax planning opportunities. There is still time to reduce your tax bill and changes today can protect yourself from future tax liabilities.
Here are 8 tax tips for you to consider:
Paying a bonus or voting a dividend
From 6 April 2022, the Government’s Health and Social Care Levy will come into effect, meaning that tax rates will increase by 1.25%.
You may therefore wish to consider paying a bonus or voting a dividend prior to 6 April 2022 tax year to take advantage of the current, lower tax rates.
Maximise your ISA contribution
You can put up to £20,000 a year into an ISA and the future income and any capital gains will be tax-free. You can do the same for your spouse.
Consider a Lifetime ISA
If you are over 18 and under 40, there is still time to set up a Lifetime ISA (‘LISA’). You can use a LISA to buy your first home or save for later life. You can save up to £4,000 of your ISA allowance each year until you are 50 and benefit from a 25% Government top-up.
Put cash into your pension
Making a pension contribution may help to reduce your tax bill. This will apply if you are a higher rate or additional rate taxpayer. If you are losing some of your personal income tax allowance because you earn over £100,000, making a pension contribution can be particularly efficient because it may give you an effective tax saving of 60%. Remember that there are limits on annual pension contributions so take advice before making a contribution.
Put cash into a close family member’s pension
You can contribute to a SIPP and claim basic-rate tax relief for up to £2,880 a year regardless of your earnings, with the fund claiming £720 from HM Revenue & Customs to give £3,600 gross benefit. This is useful for non-working spouses and children.
Consider a gift to charity
Giving money to charity can give you a tax benefit as well as benefitting the charity. This will apply if you are a higher rate or additional rate taxpayer and there is no annual limit on what can be gifted.
Sell investments to utilise your CGT annual exemption
We all currently have a capital gains tax annual exemption of £12,300. If you have shares or unit trusts, it may make sense to sell enough before the year-end to use up this exemption. If you have a larger gain, you can transfer assets to your spouse to use their allowance as well. The tax rules prevent you from buying the same investment back straight away so again take advice before you act.
Consider an investment in a VCT or EIS
There are tax benefits with Venture Capital Trusts (VCTs) and the Enterprise Investment Schemes (EISs). However, this is largely down to these investments being higher risk so great care must be taken. If you are willing to take the risk, these types of investments do have considerable tax advantages but always seek advice and consider you may not have time to properly assess the investment given there are only two months until the end of the tax year.
This is not investment advice, we recommend you discuss the above with your financial adviser.
Bevan Buckland LLP is the largest independent accountancy practice in Wales providing practical support and strategic accounting and tax advice for small to medium-sized businesses. Headquartered in Swansea, the firm has offices in Cowbridge, Carmarthen, Pembroke, Haverfordwest and St David’s.
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