Legal update: Year-end tax planning checklist
February 22, 2022 | Time: | Location: | Category: News
As we approach the end of another tax year, now is a good time to consider whether all allowances and reliefs have been maximised as far as possible, and whether any action needs to be taken before 5 April 2022.
To make it easier to identify the points that might affect you, we have broken them down by category of who they affect.
| Who is affected? | Description | Action to take? |
| HIGH EARNERS | The personal allowance is reduced by £1 for every £2 of net income over £100,000. As a result, the marginal rate of tax for income of between £100,000 and £125,140 could be as high as 60%. | If your income is close to these thresholds, consider ways to reduce your taxable income, such as making pension contributions, charitable donations, deferring income into 2022/23 or transferring income-generating assets to your spouse. |
| HIGH EARNERS | Any donations to charity will reduce your tax liability by extending your basic rate band. For example, if you donate £800, this is grossed up to £1,000 on your tax return, and your basic rate band is extended by this amount. If you are a higher rate taxpayer, this will reduce your tax payable by at least £200. | Consider making additional charity donations before 5 April 2022. Also, dig out any gift aid certificates, so that they can be included on your tax return. If you are a partner in a partnership or LLP, ensure that any donations are made in your own name, not through the partnership, to ensure tax relief is available. |
| HIGH EARNERS | The annual allowance for pension contributions is £40,000 for 2021/22, although this is reduced proportionately for individuals with taxable income above £240,000, until it reaches a maximum contribution level of £4,000 at a total taxable income level of £312,000 (or more). Anyone who is a higher rate or additional rate taxpayer will receive tax relief at their highest marginal tax rate on any contributions into pension schemes. | Consider making additional pension contributions to utilise your allowance for 2021/22. It is also possible to make use of unused pension contribution allowances for the previous three tax years. Specific pensions advice needs to be taken before making any decisions. |
| SAVERS/ INVESTORS | The savings nil rate band means that the first £1,000 of savings income is tax free for basic rate taxpayers. This drops to £500 for higher rate taxpayers and to nil for additional rate taxpayers. In addition, for individuals that only receive investment income in excess of the personal allowance, the first £5,000 of interest will be subject to the starting savings rate of 0%. | If you are a higher rate or additional rate taxpayer, and you receive large amounts of interest income, consider transferring savings held in your own name to your spouse. If you have loaned money to your company, consider paying yourself a commercial rate on the loan to fully utilise these allowances. The company will need to deduct basic rate tax and submit a form CT61 to HMRC. |
| SAVERS | The maximum investment limit for an individual savings account (ISA) is £20,000 per person in 2021/22 for UK residents. Any growth in the ISA is free of both income tax and capital gains tax. | If you have surplus cash, consider utilising some or all of your ISA investment limit. Junior ISAs are also available for children under 18, up to a maximum of £9,000 in the current tax year. Advice is recommended before making any investment. |
| PARTNERS | As a partner, if you incur business expenses personally and are not reimbursed by the practice, you may be able to deduct them from your taxable profits and reduce your tax bill. Common expenses include motor running costs, funding of capital and working from home costs. | Make a list of all expenses that you have incurred personally, where you believe that there is an element of business usage. Have this to hand to send to your accountant when you submit your tax return information |
| SHAREHOLDERS | The dividend allowance means that the first £2,000 of dividend income is tax free. | Ensure that you have fully utilised your dividend allowance for 2021/22. If not, consider paying yourself a dividend. Spouse planning may also need to be considered. |
| SHAREHOLDERS | Director/shareholders should review their remuneration package in advance of the tax year, to ensure that it is as tax efficient as possible. | Consider paying a combination of low salary, high interest and high dividends. This could result in tax-free income of up to £20,570 in both 2021/22 and 2022/23 (and double that for couples), depending on the circumstances of the individual. |
| INVESTORS | The capital gains tax annual exemption for 2021/22 is £12,300. Any unused exemption is lost. | Try to use the annual exemption as far as possible. Consider making a transfer of assets between spouses, where appropriate. If the annual allowance has already been used, consider deferring further disposals into the new tax year. |
| INVESTORS | There are various Government-backed investment platforms, such as enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) and venture capital trusts (VCTs), that give the incentive of income tax relief in exchange for the underlying investment carrying a varying degree of commercial risk. | If you have surplus cash, consider making a taxefficient investment. Certain conditions must be met to obtain the available tax reliefs, which would need to be carefully considered. Again, investment advice is recommended here. |
| INVESTMENT PROPERTY OWNERS | Mortgage interest relief is now restricted to the basic rate of tax, resulting in a significant increase in the effective tax rates for some landlords, particularly where they are higher earners. | Where you have borrowings attached to rental properties, review your operating structure to see if the arrangements can be made more tax efficient. Options include spousal transfers, use of partnerships or incorporation. |
