It’s that time of year again when the postman delivers an endless barrage of mailshots advertising new and miraculous ways to manage your money. Their goal is to make money from your money so most of us direct them straight to the recycling – where they belong.
Having a plan and sticking to it does not require a huge amount of financial literacy – just patience, common sense and the input of a good independent financial adviser.
To illustrate this, here are five end of year tax tips that can help reduce your stress levels and put a few bob extra in your pocket.
Maximise your ISA
It starts with an ISA and those that started with a £3000 per annum investment back in 2000 and maxed out their ISA could easily have achieved a tax-free ISA pot of over £500,000 and have even become an ISA Millionaire. With the allowance being £20,000 per annum it is certainly an investment that should not be put off, come the next tax year you can invest another £20,000.
For young adults you can allocate £4000 of your £20,000 to a Lifetime ISA this attracts a 25% bonus and goes a long way towards funding a property purchase.
Help your children start saving tax-efficiently
Junior ISA limits have now climbed to £9000 per annum, starting early could make an enormous difference for children and when they become an adult, the Junior ISA converts to a stocks and shares ISA.
Topping up your pensions
These end of year tax tips are all about tax-efficient financial planning; the annual allowance has been reduced to £40,000, which is set by your relevant taxable income. However, this could be as low as £10,000.
One of our independent financial advisers would be best placed to advise you whether you can or should make a pension contribution.
Unknown to pension savers there is the carry-forward rule, which may enable you to maximise your pension contributions by using the previous three years’ contributions.
Take your dividends
Receive £2,000 of dividends free of income tax, the dividend allowance lets investors and shareholders receive this each year.
Any dividends taken over this amount would be subject to 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. These rates are set to increase from April 2022 by 1.25%
Utilise your capital gains tax allowance
You do not pay capital gains tax on the first £12,300 of a qualifying asset, any gain over this amount CGT would be due.
So, splitting the gain over several tax years is a clever idea as well as using multiple allowances if the assets being disposed of are jointly owned.
Inheritance tax gifts
Your personal nil rate band of £325,000 is a sizeable sum to gift over seven years, adding the residence nil rate band if qualifying means that this could increase a couples’ allowance to as high as £1000,000 but there may still be a need to cap or reduce your inheritance tax liabilities. there are many ways to do this, but most don’t give up the annual exemption of £3000 per annum per person; there are additional exemptions from between £1000 – £5000 for a wedding and carrying forward the previous unused allowance is a bonus or even the small gift allowance of £250 to everyone you meet.
Get started, do not leave these end of year tax tips until the last minute, it takes time and, in some cases, can take a few weeks to set up. Remember you only have until April 5. Some of these tips can also help with avoiding tax traps but if you like paying tax? do nothing.
For more information on the content of this column you can contact David on 01753 839348, visit Woodward Financials or email.
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About the Author / David Woodward
