With 2022 fast approaching and the tax year end, 5 April on the horizon, now is a good time to stop and work out what actions are required to make use of the relevant tax planning opportunities that are of interest to you and your wider family.
What do you need to consider?
Ideally, the person in the family with the highest marginal tax rate should be making the Gift Aid payments.
When making donations there are two things to remember:
Quite simply both you and the charity benefit.
See our article How to make festive donations via Gift Aid for more information.
The benefits of making a pension contribution are:
It is important to review your pension contributions to see if there is scope to make additional contributions and utilise unused capacity brought forward from the three previous years.
For more information please see our recent articles, COVID-19: The ‘high earner’ pension contribution conundrum and Pension contribution opportunities for Partners in professional practices.
Personal income above between £50,271 and £150,000 is taxed at 40%.
Personal income over £150,000 is taxed at 45%.
However, there is a band of income between £100,001 and £125,000 that suffers an effective rate of 60%; due to the loss of the personal allowance.
Individuals may be able to reduce the income being taxed at these high rates of tax by taking advantage of the following:
Where personal income exceeds £125,000 after deductions for pension contributions and Gift Aid, individuals that manage their own companies may wish to consider accelerating income into the current tax year – up to the £150,000 additional rate threshold – to maximise use of the higher rate band.
There are generic tax efficient investments that individuals are able to investment in where income tax relief is available which will reduce your tax liability.
One way of utilising the allowance is to sell and then buyback stocks and shares.
This provides an opportunity to increase the base cost for future sales.
The repurchase will need to be delayed for more than 30 days or made by your spouse, civil partner, or ISA to benefit from this.
1Not available to those taxed on the remittance basis with income and capital gains above £2,000.
IHT-free planning opportunities to take advantage.
This is a complex area and advice should be sought.
Are you making the most of the different types of ISAs that are available to you and your family?
The income and capital gains generated is tax-free and they are not taxed when withdrawn.
They can be used by parents or grandparents to transfer funds to future generations and assist children to save for their future, for their education, or a future home.
This is only available for those aged between 18 and 40 at the time of opening the account. Contributions can be made up until the age of 50.
A bonus of 25% of that year’s contributions is added on each contribution.
The bonus is only retained if the LISA is used to:
purchase a first home, or
withdrawn after the age of 60.
These allowances encourage families to structure their savings to utilise these allowances where possible.
These are two separate £1,000 tax-free allowances are available; one for trading and miscellaneous income, and another for income from property.
These allowances are designed to exempt modest amounts of income for example from sales on eBay, Amazon or Airbnb.
If you rent out part of your main residence, up to £7,500 of income from the letting will be tax-free, if rent-a-room relief is claimed.
Where one spouse/civil partner is a basic rate taxpayer, and the other has income below the personal allowance, the latter can transfer 10% of their personal allowance to their spouse/civil partner resulting in tax relief of up to £252 in the current tax year.
Tax relief can be claimed on certain expenditure incurred in connection with your employment. This includes:
Employees should also review their tax codes to ensure that the correct allowances and deductions are included.
If the tax codes in the current year are incorrect then an underpayment may arise and be due following the end of the tax year.
Taking advantage of year-end tax planning should only be part of your overall tax planning strategy. Tax planning is all about putting into place a strategy which provides the right structure and security of your financial affairs. Your strategy should evolve and develop with time and enables you to plan for the future.
For more information on how you can make the most of your tax planning opportunities please speak to your usual Crowe contact.
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