Many of us benefit from a deadline to spur us to action, as it focusses the mind on an issue when time is running out. When it comes to financial planning, the end of the tax year is a natural time to check you and your family have made the most of the available allowances before they are lost for good.

So before we say goodbye to 2021/22 on the 5th April, here’s my top 10 checklist of things to consider.

1. Use your ISA Allowance – Cash or Stocks and shares


Why do it?
ISAs are free from income and capital gains tax. Investments within ISAs can therefore grow tax free. You can access at any point and there is no tax on withdrawals.

Limit: £20,000 limit (applies across cash and stocks and shares ISAs).

Bear in mind: although you can access an ISA, investments in stocks and shares ISAs should be considered long term, at least 5 years. The £20,000 limit applies across all ISAs – you can’t contribute to more than one of the same type of ISA in a single tax year, and some ISAs have a lower allowance

2. Pay more into your pension


Why do it?
Pensions remain the most tax efficient way of saving for retirement for the vast majority of savers. Personal contributions attract tax relief, there are no taxes on investments within a pension, and you can have a 25% tax free lump sum at retirement. There is no NI on taxable pension income, your pension is not part of estate for IHT and can be passed on to any beneficiary. Personal contributions can be even more tax efficient for those subject to the Child Benefit Tax Charge or for those earning over £100,000 who have their personal allowance reduced/eliminated.

Limits: The standard pension allowance is £40,000, but this can be reduced to as little as £4,000, due to either high earnings or if you have already taken taxable pension income.

Bear in mind: For personal contributions to qualify for tax relief you must have sufficient relevant UK earnings (this excludes dividends and rental income). If you earn less than £3,600, you can pay in up to £2,880 and still get tax relief. Personal contributions to workplace pensions are counted within this allowance. If you are earning over £200,000 pa, you should check your allowance as it may be tapered down. If you have a pension worth over £1,000,000 you should consider whether you’ll face a Lifetime Allowance tax charge for those with significant pension benefits. If you have taken benefits from a money purchase pension, your allowance may be reduced to £4,000. You should be aware that both the Annual Allowance and Lifetime Allowance also apply to any defined benefit (or final salary schemes) you may have. The interaction of these is more complex, and you should seek advice if you are unsure. If you hold any form of HMRC protection against the Lifetime Allowance you should take advice before making any contributions.

3. Check if you have carry forward that would allow you to make a bigger pension contribution


Why do it?
Carry forward allows you to make use of any annual allowance that you might not have used during the three previous tax years, provided that you were a member of a registered pension scheme during the relevant time period.

Limit: you must have used this year’s allowance first, and you’ll then use any unused annual allowance from the earliest tax year first.

Bear in mind: if you are subject to a tapered annual allowance (a high earner), you need to measure any unused annual allowance against the tapered allowance for each given year, so it’s best to take advice.

4. Contribute to a Lifetime ISA for a 19-39 year old


Why do it?
If you, your children or grandchildren don’t already own a home (and hasn’t owned one before) this is a great way to save towards that goal. It can also be used as a retirement planning product alongside a pension.

Limit: £4,000 per tax year, with government bonus of up to £1,000. This £1,000 doesn’t count towards your overall ISA allowance but the £4,000 does. You can use the ISA to purchase a first home of up to £450,000.

Bear in mind: Applicants must be between ages 18 – 39 at point of opening the ISA, but once open can continue to contribute until age 50. To avoid the 25% tax penalty for withdrawals the money either needs to be put towards a first home or withdrawn after age 60 (so for retirement). The withdrawal penalty is higher than the government bonus, and the account must be opened for at least 12 months before it can be used to purchase a new home.

5. Contribute to a Junior ISA for someone under 18


Why do it?
This is a way to build a lump sum for children at 18 via long-term, tax-free savings. Contributions can be received from parents and grandparents.

Limit: £9,000 per tax year, this overall limit applies to both cash or stocks and shares

Bear in mind: A parent or guardian must open and manage account. Children can manage the account from 16 and at 18 the ISA automatically becomes an ‘adult’ ISA and is accessible. No withdrawals before this age are permitted.

6. Make gifts within the annual gift exemptions to reduce the value of your estate


Why do it?
If your estate is over the IHT threshold, each gift within the allowance made now will not be subject to IHT at 40% on your death. This will lower the inheritance tax payable plus making the gift now has the added benefit of you seeing the impact of a gift in your lifetime.

Limit: each individual can give up to £3,000 each tax year, and it’s possible to use the previous year’s allowance if it wasn’t used, taking this to £6,000. There are also allowances for gifts in relation to weddings, and a small gift exemption of £250 (to an unlimited number of people).

Bear in mind: You should keep a record of all gifts made and, as a gift, will be qualify if repaid.
You can gift up to £325,000 without paying IHT, but IHT could become payable if you die within 7 years of the gift, and there are complex rules surrounding multiple gifts, timing and ordering.

7. Consider transferring assets between persons in a marriage or civil partnership


Why do it?
It can often be prudent to look at any income producing assets and think about whose name they should be held in to minimise the tax liability. This can help reduce the higher earning spouse’s taxable income, restoring allowances and potentially:

Make use of 2 x CGT allowances

Make use of 2 x personal allowances and tax bands

Make use of 2 x dividends

Make use of 2x savings allowance

Capital Gains Tax (CGT):
Each individual has an Annual Exempt Amount, £12,300 this year. If you want to sell shares, don’t forget to use up any unused CGT allowance. You can transfer assets between spouses free of CGT (the spouse ‘inherits’ base cost from donor) to use both allowances.

Bear in mind: the CGT rates 10% for basic rate tax payers or 20% for higher/additional rate tax payers, and CGT sits on top of existing income. There is also an 8% surcharge for gains made against residential property, taking the rates to 18% or 28% respectively.

Personal allowance:
Individuals have a personal allowance of £12,570 and income in this band is not subject to tax.

Bear in mind: Those earning over £100,000 have their personal allowance reduced, at a rate of £1 for every £2 of earnings over this threshold.

Dividend tax allowance:
You can receive share dividends of up to £2,000 in a tax year without paying any tax on the income.

Savings allowance:
For a basic rate tax payer: No tax to pay up to £1,000, For a higher rate tax payer: No tax to pay up to £500.

Bear in mind: Additional rate tax payers have no allowance Even if just £1 of income falls into the higher rate tax band, this will result in the allowance being halved, or eliminated entirely for £1 of earnings in the additional rate band.

8. Make use of your partner’s allowances


Marriage allowance:

It is possible to pass up £1,257 of un-used personal allowance to a spouse, provided the spouse is not a higher or additional rate tax payer. This can provide a tax saving of up to £250, and you can backdate claims for a limited period. So in order to claim for 2017/18 you need to do this before 2021/22. https://www.gov.uk/marriage-allowance. Bear in mind that you’ll lose the marriage allowance if your income pushes you into the higher rate income tax band, even by just £1!

Pension allowance:
In retirement it is far more efficient to have two similar sized pension pots for each husband/wife, rather than one large one. Having a pot each means it is possible to draw twice as much pension income before either pays any tax or is paying tax at the higher or additional rate. So don’t forget to look at your partner’s allowance too.

9. Claim tax relief for working at home during Covid


Why do it?
Everyone who has been asked by their employer to work from home for at least one day during 2020 lockdown or during 2021/22 financial year can claim tax relief from HMRC for gas and electricity, metered water, and business phone calls

Limit: this could be worth up to £124

Bear in mind: You get tax relief based on the rate of tax you pay and you should hold evidence of the bills. More information can be found on the HMRC website.

10. Invest in a Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS), Seed EIS (SEIS)

Why do it? There are a wide range of tax reliefs available for investors in these products, in recognition that they are investing in early stage, highly speculate (risky) companies; Income tax relief of 30% for VCTs, 30% for EIS, and 50% for SEIS. Dividends from VCTs are tax free, and all 3 are exempt from CGT on the investment gain. There are further CGT benefits available for EIS & SEISs.

Limits: £200,000 for VCTs, £1m EIS, £100,000 for SEIS. The investments must also be held for a qualifying period in order to retain tax reliefs (5 years for VCT, 3 years for EIS & SEIS).

Bear in mind: These are not suitable for the vast majority of investors. They are very high risk investments with very little liquidity – meaning it is hard to sell them. In addition because they are specialist investments they are expensive in terms of fees and costs.

Please remember that all share investments come with risk. The checklist is not intended to be comprehensive analysis nor a personal recommendation so I strongly suggest you visit an unbiased website like moneyhelper.org.uk for more information or seek professional independent advice, to make sure you understand the benefits, risks and limitations in your situation. If you would like to discuss anything listed above, please get in touch!