End of Tax-Year Checklist: How Prepared Are You?

In 2022 the tax year will end – much like it has every year since 1800 – on the 5th of April, but how prepared are you for this deadline? For this date, accounts will need to be prepared, income and gains will need to be reported, and allowances will be reset.

The Office of Tax Simplification has recently published a report analysing the benefits of aligning the tax year to end on 31st of March – or even 31st of December, in line with the calendar year as with many other countries – but it is likely that any such change is many years away.

For those who review their financial plans regularly – as we would always recommend – the approaching tax year-end is an unlikely cause for concern. A solid financial plan takes tax allowances and exemptions into account, using these throughout the year in line with regular reviews or when it is most advantageous to do so. Without this structure and process in place, you may be missing out on the benefits of these allowances and exemptions.

Most will have a standard personal allowance of £12,570 each year, and income received up to this point will be free of tax. They are also likely to have the Personal Savings Allowance of up to £1,000 per annum and, depending on income, may also be eligible for the starting rate for savings band, which allows for a further £5,000 of savings income to be taxed at 0%. Taking these into account, this means that if an individual structures their income efficiently, they could receive £18,570 of income and pay no tax. On top of this, should it be applicable, they would also be entitled to £2,000 of dividends tax-free. Altogether, they could receive as much as £20,570 per annum tax-free should circumstances allow.

Those with investments may also wish to consider reviewing their holdings to assess whether they could structure their income more tax-efficiently.

ISAs are one of the most popular ways to save and invest in the UK, and enables an individual to save up to £20,000 each year in the form of either a cash ISA, stocks and shares ISA, or a combination of the two. There is no capital gains tax to pay on any growth within an ISA, nor is there any income tax to pay on interest or dividends. Those who have not already, should look to maximise the use of their ISA allowance as this cannot be carried forward into the next tax year.

Pensions are a great way to invest for the future, whether the funds will be used for retirement income or passed on as a legacy. Providing contributions are within the available allowances, they will benefit from tax relief, increasing the amount that is actually invested. Growth within pensions is not subject to capital gains tax, and although withdrawals are subject to income tax, 25% of the pension can generally be taken tax-free meaning – for most people – tax relief upon saving greatly outweighs any tax paid on withdrawing the funds. Furthermore, any funds not withdrawn can be passed on to beneficiaries, which often provides its own tax-efficient benefits.

We all have an annual exemption for capital gains, which is currently £12,300 individually and £24,600 for a couple. Where investments have generated large gains, utilising the exemption on an annual basis can provide an efficient means of income or, alternatively, the proceeds can be used to invest in a more tax-efficient way. Losses can also be realised and carried forward to be used against possible future gains.

An individual can gift up to £3,000 each year without counting towards their IHT liability. If unused, the £3,000 allowance can be carried forward to the following year. This can prove an effective way of passing on wealth to the next generation over a longer time period. This benefit could also be multiplied if the funds are used to make a third party pension contribution on behalf of a child or grandchild (provided they are eligible for tax relief).

These key areas are just a few of many considerations to be made as the end of the tax year approaches. It is our strong belief that the best outcome is likely to be achieved by building a robust financial plan that takes into account your personal situation and is tailored to your own individual goals and objectives. Like all
financial planning, the earlier you prepare, the longer you have to reap the rewards. Please do not hesitate to get in touch with your adviser if you would like to review your arrangements ahead of this year’s deadline, or get a head start on preparations for the following tax year.

1. Make use of your personal allowances.
2. Review your savings and remaining allowances in your ISA.
3. Review your pension contributions.
4. Assess your investments and capital gains exemptions.
5. Consider the use of IHT allowances.
6. Start planning ahead for the following tax year to optimise your allowances.

If you require any assistance with the above or any other preparations for the 5th of April, we strongly recommend that you get in touch with an Integrity365 adviser who will be able to review your current arrangements and structure a tax-efficient plan aligned to your goals. Call today on 0117 450 1300.