Some things are so unexpected that no one is prepared for them - apart from the Tax Year End!


Stuart Walker

Stuart Walker

Chartered Financial Planner, Associate Director


If 2020 has taught us anything it’s that trying to predict what might happen in the years ahead is difficult. That said, what will change is the ongoing tax regime, and not always in a positive way for investors.

The one constant we have is making sure you use the valuable tax allowances that are available each tax year.

Below are five important things to remember when planning for the Tax Year End on 5 April: 

1. Use your ISA allowance

ISAs provide a tax efficient environment for your savings. The maximum investment that may be made during the 2020/21 tax year is £20,000. However, you should be aware that any unused investment limit cannot be rolled forward into next year – so make use of your saving limit before April.

2. Manage your investments

Investing in qualifying Venture Capital Trusts (VCT) will attract 30% income tax relief (maximum investment of £200,000) providing the investment is held for five years. Dividends are tax free and no Capital Gains Tax is paid on disposal. Whilst such investment may reduce your income tax liability, they are only suitable for clients with a high tolerance to risk who can afford to bear loss of capital, so seek appropriate professional advice before making an investment.

3. Maximise your pension contributions

Contributions to your personal pension plan attract income tax relief. The maximum contribution that may be made for 2020/2021 without incurring an income tax charge is £40,000. You may be able to make additional contributions if you have not used your allowances for the previous three tax years. Contributions must be made before 5 April 2021 if tax relief is to be claimed in 2020/2021.

There has been a significant increase this tax year to the starting level of taper relief for higher earners (total income over £240,000 per annum increased from £150,000) and therefore whilst in previous years you may have been impacted, this may not be the case in the current tax year. However, the minimum pension amount available for those high earners has been reduced from £10,000 to £4,000 dependant on your earnings, so seek professional advice to determine if you are affected by taper relief.

4. Capital Gains Tax

For 2020/21, capital gains up to £12,300 per person will not give rise to a capital gains tax liability. So, make sure you use your annual capital gain tax exemption before 5 April 2021, if appropriate, as any unused balance cannot be carried forward.

5. Inheritance Tax

If you are considering making gifts to family and friends in the near future, ensure that you have maximised your annual inheritance tax gift exemptions for this tax year. You may also utilise any unused part of the 2020/2021 exemption, but this will be lost if not used by 5 April 2021.  The annual gift exemption is £3,000.

Talk to your adviser

The above is a brief overview of some of the actions that you can take to reduce your tax liability, however there are other options available that you may want to consider for your own personal situation. As always, we recommend that professional advice is sought with your financial planner before taking action. Get in touch with the Johnston Carmichael Wealth team. 

This year the tax year end falls on Easter Monday, so please be aware that we will be working to a deadline of 1 April to allow for the bank holidays on Friday 2 and Monday 5 April – and that’s not an April’s Fools!

 

Tax reliefs and allowances are those that apply at 12 January 2021 and are subject to change in the future. The benefit of these to an individual are dependent upon your personal circumstances.

This article if for information purposes only and should not be construed as an individual recommendation.

Disclaimer: While all possible care is taken in the completion of this blog, no responsibility for loss occasioned by any person acting or refraining from action as a result of the information contained herein can be accepted by this firm.