Personal Tax Planning: Are you making the most of your tax allowances?
It’s hard to believe that we are a month on from Christmas and New Year already. Other than when the next Bank Holiday and this year’s Jubilee celebrations are, where else are your thoughts drifting this year? Well, sorry, but you are going to have to come back from dreaming about your long hot summer holiday for now, because the tax year-end is almost upon us. And whilst it might not be top of your favourite things to do, if you are not already forging ahead, personal tax planning and efficient financial calculations now could be more beneficial than you may think.
Tuesday 5th April is the official 2021/2022 tax year-end. And to make the whole process a little more appealing, read on to find out all you need to know about making the most of tax relief, exemptions, and personal tax allowances.
First things first, some good news.
HMRC self-assessment deadline extended
If you were concerned about facing a penalty for late submission of your Self-Assessment, for the second year, HMRC has extended the window for online tax returns until 28th February 2022, and waived the penalty for late tax returns during this period.
One cautionary note though, although you have a month longer than anticipated for online Self-Assessment submission, interest will still be charged on any tax that is paid late.
If for any reason you are unable to pay your Self-Assessment tax within the deadline, personal taxpayers (or tax-paying businesses) will not receive a penalty so long as the outstanding tax bill has been paid in full, or a Time to Pay Plan has been set up by 1st April.
When it comes to personal tax planning, we would always advise that you submit your Self-Assessment and tax payments in a timely manner, and of course, if things are getting a little too complicated or time-consuming for you, we would love to talk to you about your future tax and other financial planning.
Personal tax planning considerations
For now, though, we appreciate that some decisions around tax allowances and exemptions should not, and cannot, be made quickly. So the sooner you start personal tax planning the better.
Why would you not want your money to work for you? So, the following might create longer-term financial benefits, and lead towards the financially secure life you want for you and your loved ones:
Could you increase your pension contributions?
You can gain full income tax relief and reduce your taxable income by increasing your contribution. This is one of the few ways you can do so, and it could determine whether you fall liable for the High Income Child Benefit tax charge, or retain your full personal allowance.
This year you can contribute up to £40,000 or 100% of your salary.
Now is the ideal time to work out if this is going to benefit you as you are assessing, or already have a good idea of how much income tax you are due to pay.
Inheritance Tax and Capital Gains Tax
A plethora of scenarios revolve around Inheritance Tax and Capital Gains Tax calculations, so please do not consider this article as the full extent of information we provide. This is simply to give an overview of some of your questions.
By way of an update, it is with a slight sense of relief that we now know the Chancellor is not taking forward any major reforms in either of these areas. So making sure you utilize your full annual allowances should be high on your list.
Inheritance Tax (IHT) nil rate bands are remaining frozen until April 2026, so we would encourage you to use your £3,000 annual gifts exemption for instance to protect your family’s future wealth.
If the pandemic has taught us anything, it is that our next years are not guaranteed. So starting to reduce the taxable value of your estate now could ease the financial burden on your beneficiaries when the time comes to handling that 40% IHT rate above the current £325,000 threshold.
In addition to your annual gifting allowance, you can reduce your Inheritance Tax bill by using any of the previous tax year’s unused allowance.
As for Capital Gains Tax (CGT), the CGT-free gains of up to £12,300 is remaining in place for another tax year, which will make your personal tax planning a more simplified calculation, as there is no benefit in realising gains in excess of this amount in case there is more tax to pay in future.
You can reduce your Capital Gains Tax bill by claiming allowable expenses, splitting your gains over two tax years, or using tax-free transfers to your spouse.
Personal tax planning in summary
To summarise then, four key factors in your personal tax planning:
- Look to the future – remember you are seeking the most tax-efficient strategy now, but also consider your medium and longer-term plans as well as short-term financial planning.
- Think of yourself, your business interests, and your loved ones. Making the most of pension, IHT, and CGT personal allowances will create a more stable financial future for you all.
- Keep your focus on the tax year-end of 5th April 2022, so as to ensure you don’t lose any benefits and entitlements (include any ‘carried forward’ from previous years if this year is the three-year cut off) and to avoid any unnecessary stress, and additional penalties or interest payments
- Remember tax relief can help you reach the ultimate tax-efficient position.
Simpson Financial Services can take care of your personal tax planning to ensure your money works for you!
Look out for our next blog which provides more information about tax planning, ISAs, dividends, and shares.
In the meantime, we hope this article has been of use to you. But we understand that tax efficiencies and the legalities involved can still be overwhelming (and dare I say, boring?!) for some of you.
This is exactly why Simpson Financial Services has the best team of Independent Financial Advisors on hand to guide you through your financial planning, to give the most up-to-date information and financial advice across all markets, savings and investments, estate planning, and pensions. We will ensure you are paying only what you legitimately owe in taxes, and don’t fall foul of any penalties.
If you think that your financial portfolio could benefit from an expert assessment, or if we could help with your personal tax planning, just contact us to get the ball rolling, and take that weight off your mind.
The value of tax relief depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax or benefit advice.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
