Personal tax planning tips for year end

Managing your own income and wealth requires regularly looking at your tax situation and seeking advice on how you can minimise your tax and make maximum use of personal tax incentives and reliefs.

In this article, we give you the best personal tax planning tips for the tax year end. The tax year end runs until 5 April 2022, so get planning now to minimise your tax and maximise reliefs before this time.

Here’s our 10 personal tax planning tips for 21/22.

Tax tip #1 Personal allowance transfer

If your spouse or civil partner doesn’t use all of their personal allowance, then you can jointly elect to transfer unused personal allowance to you (if you’re a basic rate taxpayer) to reduce your tax burden.

Tax tip #2 Save tax by spending

If your income falls above one of the thresholds (see below), you could reduce your tax liability via tax-efficient spending. For example you could make pension contributions, give to charity or use tax-efficient investments.

Personal tax thresholds in the UK and Northern Ireland and Wales for 21/22 are:

Income (excluding dividends) Rates

£0-37,700 (Basic rate) 20%

£37,701 - £150,000 (Higher rate) 40%

£150,001 + (Additional rate) 45%

Personal tax thresholds in Scotland for 21/22 are:

Income (excluding dividends) Rates

£1 - £2,097

(The starter rate of tax) 19%

£2,098 - £12,726

(The basic rate of tax) 20%

£12,727 - £31,092

(The intermediate rate of tax) 21%

£31,093 - £150,000

(The higher rate of tax) 41%

£150,000 +

(The top rate of tax) 46%

Tax tip #3 Think about your income profile

To fully utilise the personal allowance and basic rate tax band, you should consider the timing of dividend payments from your company, income from a trust or income drawdowns.

Tax tip #5 Maximise dividends

The first £2,000 of dividends are tax-free and is in addition to your personal allowance. Dividends above £2,000 are taxed at a lower rate than other income. Deciding your level of salary vs dividend is a key consideration for company shareholders.

From 6th April 2022, basic rate dividend tax will be charged at 8.75% instead of 7.5% this year. Higher rate dividend taxpayers will be charged 33.75% instead of 32.5% and additional rate dividend taxpayers will pay 39.35% instead of 38.1% respectively. So, it is worth considering paying a higher dividend prior to the end of this tax year to avoid paying the increased dividend tax rates in 22/23 tax year.

Tax tip #6 Pensions contributions and charitable giving

If you are a higher or additional rate taxpayer (intermediate rate, higher rate or top rate for a Scottish taxpayer) you can save income tax by making personal pension contributions before the end of the tax year. You can contribute up to £40,000 per year into a pension scheme (including employer and personal contributions).

Gift aid is a tax efficient way for UK taxpayers to make donations to registered charities. If you’re a higher rate taxpayer, then you benefit by obtaining relief for the donation on your tax return. Your basic rate band is extended by the gross donation and increases the proportion of your income taxed at lower rates. The easiest way to make a claim for gift aid donations is to do so through a self-assessment tax return.

Tax tip #7 High income child benefit

If you have children, you could rearrange income (between spouses and civil partners) so both incomes are below the £50,000 threshold for High Income Child Benefit.

Tax tip #8 Capital gains tax (CGT)

You have an annual capital gains tax exemption for the tax year which is £12,300 for 2021/2022. This annual exemption cannot be transferred or carried forward, so it may be wise to make disposals on or before 5th April to use this years exemption.

The timing of any capital disposals may well affect the CGT you pay. For example if you’re currently a lower rate tax payer this year, but may become a higher rate tax payer next year, then disposing of an asset whilst you’re a lower rate taxpayer could reduce your CGT bill.

Tax tip #9 Individual savings account (ISA)

If you’ve already used your pension annual allowance, then ISAs can offer you a good tax efficient alternative. The ISA allowance for 2021/22 is £20,000. The limit can’t be carried forward, so if you don’t use it by 5th April, it will be lost. The ISA wrapper is a useful tool for a higher rate taxpayer, since growth on the ISA is free of income tax and capital gains tax. Think about putting money in your ISA prior to 5th April to utilise all or some of this years allowance.

Tax tip #10 Other tax efficient investments

There are a number of other tax efficient investments that you could utilise where income tax relief is available. These are as follows:

Venture capital trusts (VCTs): Investments up to an annual maximum of £200,000 qualify for income tax relief at 30%. Dividends received are tax-free. There is no Capital Gains Tax (CGT) payable on any gain made when sold.

Enterprise Investment Scheme (EIS): Investments in qualifying companies up to an annual maximum of £1 million attract income tax relief at 30%. This limit is increased to £2 million where investments over £1 million are invested in knowledge-intensive companies. If the investment is held for more than 3 years than any capital gain generated is exempt.

Seed Enterprise Investment Scheme (SEIS): An individual can invest up to £100,000 per tax year in start-up companies that qualify for the SEIS. Income tax relief is at 50% of the investment. If the investment is held for more than three years than any capital gain generated is exempt. Reduce capital gains in the year by up to 50% of the SEIS investment.

Personal tax tips summary

Taking advantage of year-end personal tax planning should be part of your overall tax planning strategy. Your strategy should be regularly reviewed by a tax professional and should evolve throughout your lifetime.

To make the most of your personal tax planning opportunities for 2021/22 please speak to one of our personal tax experts on 03330 886 686, or e-mail us at enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.