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Strategic Insights | Tax year end is nigh

 

The media lens may be focused almost exclusively on vaccinations, lockdowns and Brexit fallout, but it would probably take an extinction level event for HMRC to disregard the end of the tax year.

 

February and March are important months in the tax calendar. It’s never too early to ensure that you have done everything you can to be tax-efficient before the year closes. You should use this time to get your tax affairs in order. Otherwise, you may lose valuable allowances.

 

There are just under eight weeks remaining of the 20/21 tax year, and Investment Quorum will be using some of that time to encourage you to take stock, ensure that you have used all the allowances available and act now if you haven’t.

 

ISAs: £20,000 tax-free

Individual Savings Accounts or ISAs have extremely favourable tax status. Remember that you can invest up to £20,000 each tax year, and ISAs are not subject to income and capital gains tax. If you have withdrawn any money from your ISA this year, you have until the end of March to replace what you have taken out, without your annual allowance being affected.

 

Pensions: always in the government’s sights

Pensions are also free from income and capital gains tax and are one of the most tax-efficient vehicles available. And since pension freedoms were introduced in 2015, they now play a key role in planning a tax-effective retirement strategy. You have an annual allowance of £40,000 (on top of a lifetime allowance of £1,073,100). Furthermore, if you get a work bonus, you may be able to put some or all of that into your workplace pension. This could save you tax as well as (in some cases) National Insurance. We can talk you through all the options available and help you maximise the tax relief on your pension savings.

 

We can also look into helping you maximise your Capital Gains Tax allowance. The highest rate of CGT is currently 20% (28% for property). And the allowance is a very generous £12,300 per person, but this could well be reduced or scrapped altogether after the Budget as the government goes all out to claw back revenue and replenish the coffers in the post-pandemic economic recovery. The Budget is slated for 3 March (although this could change as events unfold), so you may only have a very small window within which to take advantage of the current arrangements.

 

CGT: sure-fire increases? We can advise you on your allowances for tax-exempt gifts as a way of reducing your estate’s liability to Inheritance Tax. There were no changes to IHT when Rishi Sunak delivered his first Budget as Chancellor, but here again, the government’s COVID-related spending over the last year makes IHT adjustments almost inevitable. There are many useful exemptions to be taken advantage of in this area, and far too many people overlook the significant benefits that can be leveraged from including them in your long-term financial planning.

 

Gift Aid In these Covid-stricken times, many of our clients have generously lent their support to a number of commendable causes and charities. Don’t forget that if you are a higher rate taxpayer, you can also claim an extra 25p for every pound that you donate to charity under the Gift Aid scheme. So if you donate £100 to a charity, the charity claims Gift Aid to increase your donation to £125. You pay 40% tax, so you can personally claim back £25 (20% of £125).

 

There are, needless to say, other tax allowances that you can maximise. You could, for example, gift income producing assets to a lower tax paying spouse, increasing your joint household income. You could regain some of the personal allowance lost on high income or child benefit by contributing to a pension. Or you could see if you can find a more appropriate home for any money or assets you may have held in unwrapped portfolios.

 

A watertight vessel has more chance of making it across the ocean than one that has sprung a dozen leaks. Making sure that your financial planning strategy is at least seaworthy at the outset is key to ensuring that it serves you into your twilight years. The world is in a constant state of flux, and there is no doubt that future changes will affect today’s financial plans. But we need to use all the various allowances, exemptions and tax wrappers available to us now, as some will be lost when current legislation changes. Investment Quorum does not know for certain what the future holds, but our advisers can work with what they know today to help you achieve your financial goals for tomorrow.


Petronella West is the Chief Executive Officer at Investment Quorum, and is focused on providing personalised financial planning and investment solutions.

This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.

If you would like to hear more about our wealth management services then please do not hesitate to call us on 0207 337 1390 or contact us via email. We would love to hear from you.

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