8 top financial planning tips for the end of the tax year

The 2021/22 tax year ends at midnight on 5 April 2022. At that time, all the dials get set back to zero in terms of your earnings and other sources of income.

It’s also the time when the clock runs out on most 2021/22 tax allowances.

So, it’s a key deadline for ensuring you take full advantage of the tax reliefs and allowances available to you during this current tax year.

The general consensus is that we’re due for a big rise in the cost of living this year. With an increase in National Insurance contributions (NICs), and rising fuel prices and inflation, it’s in your best interests to maximise tax benefits.

There are benefits to starting your end of tax year planning now. Not only will you potentially improve your financial position, but you’ll also gain peace of mind from getting everything in order and not having it hanging over you.

Since you might need to obtain paperwork and details from third parties to complete some of your tax claims, there’s no time to waste.

Here are eight tips to help you start your planning process now.

1. Utilise your full 2021/22 ISA allowance

Every adult in the UK can contribute up to £20,000 annually to an Individual Savings Account (ISA).

When it comes to your annual ISA allowance, you either use it or lose it. So, make sure you maximise your 2021/22 tax year contribution before it’s too late.

Remember, each individual over 18 has an allowance, so you should also ensure your spouse or partner is maximising theirs. 

Everything you earn from an ISA is free of Income Tax, Capital Gains Tax (CGT), and Dividend Tax – so you won’t pay tax on any withdrawals or profits.

2. Get ready to use your 2022/23 ISA allowance

While you’re thinking about ISA contributions, it’s a good opportunity to give some thought to your 2022/23 contribution, which you can make from 6 April 2022.

It’s much more beneficial to invest at the start of the tax year rather than waiting until the last minute. By getting your money working for you sooner, depending on when you invest, you can gain up to an extra year of investment growth.

For example, according to London Stock Exchange data, the FTSE 100 increased in value by 9.7% between 6 April 2021 and the end of January 2022. So, if you’d invested £20,000 in a simple FTSE 100 tracker fund at the start of the 2021/22 tax year, it would have been worth £21,940, less any charges, on 31 January 2022.

3. Don’t forget you can make ISA contributions for your children

If you have children under the age of 18, you can contribute up to £9,000 per child into a Junior ISA.

By setting up a regular payment to a Junior ISA for your child, as long as your lifestyle isn't adversely affected, the contributions are exempt from Inheritance Tax (IHT) altogether. However, for this to be the case, payments need to be made from your income, not capital.

If, on the other hand, payments are made from capital, they will fall within your small gift exemption of £250 a person each year, or your annual exemption of £3,000. Contributions above either of these thresholds could become liable for IHT if you die within seven years of making the payments.

Once your child reaches the age of 18, the ISA will automatically pass to them. They can then continue saving by rolling it into a normal ISA or spend the money as they wish.

4. Maximise your pension contributions

Tax relief makes pension contributions an extremely attractive way to save for your retirement. For every £80 you contribute, basic-rate tax relief is automatically added to make the total investment £100.

If you’re a higher- or additional-rate taxpayer, you can also claim higher rates of tax relief back through your self-assessment tax return.

For contributions you make before the end of the current tax year, the deadline for claiming tax relief is the end of January 2023. Of course, the sooner you do this, the sooner you’ll receive the relief!

You can contribute up to £40,000 gross, or 100% of your earnings into pension savings (2021/22 tax year). On top of that, even if your spouse or partner isn’t working, they are still entitled to basic-rate tax relief and can contribute a maximum of £3,600 gross in the 2021/22 tax year.

5. See if you can carry forward pension contributions from previous tax years

As well as maximising pension contributions in this tax year, you can also “carry forward” contributions from the three preceding tax years. You can use carry forward if you didn’t contribute at all or didn’t contribute up to the maximum.

So, now is the last chance to take advantage of your 2018/19 pension allowance.

You can also carry forward contributions from previous tax years for your spouse or partner, as outlined above.

6. Make financial gifts to reduce your Inheritance Tax (IHT) liability

We’ve already mentioned IHT, and you can help reduce the value of your estate, and so the amount of potential IHT liability, by making gifts each tax year.

You can make gifts of up to £3,000 each year. You can gift a further £3,000 from the preceding year, if you haven’t already done so.

This means that you can potentially gift £6,000 before the end of this tax year. If your spouse does the same, that’s a £12,000 reduction in the value of your joint estate. 

7. Don’t forget your annual Capital Gains Tax (CGT) allowance

If you’re selling assets, you’re liable to pay CGT on any profit you make in excess of the annual Capital Gains Tax allowance. In the 2021/22 tax year, the CGT allowance is £12,300.

As with other allowances, each individual has a CGT allowance, so between you and your spouse or partner you can make £24,600 profit from the sale of assets without paying CGT.

After that, the rate you pay depends on the Income Tax you pay – 10% for basic-rate taxpayers and 20% for higher-rate payers.

Once again, since you can’t utilise unused CGT allowance from previous tax years, there’s a “use it or lose it” element to this.

If you’re looking to sell substantial assets in the near future, to take maximum advantage of your annual CGT allowance, you might want to consider spreading this over two tax years.

8. Share dividends

If you have a share portfolio that isn’t invested in a tax-efficient vehicle such as a pension or ISA, you’ll be liable to pay tax on any dividend income you receive from those shares.

The first £2,000 you receive in any tax year is tax-free, but after that you’ll be taxed according to your Income Tax band:

• 7.5% if you’re a basic-rate taxpayer
• 32.5% if you pay at the higher rate 
• 38.1% if you pay at the additional rate.

Bear in mind that the rate of Dividend Tax is going up by 1.25 percentage points on 6 April 2022.

Get in touch

There’s a lot to take into consideration when you’re trying to maximise your financial tax planning strategy. If you’re feeling the pressure and time is against you, we can help.

If you would like any advice or assistance with your end of tax year planning, please get in touch. Email info@aspirafp.co.uk or call us on 01454 632 495.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning (taxation and trust advice), tax planning or will writing.

The value of your investment can fall as well as rise and is not guaranteed.

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