With each new tax year comes a fresh set of tax allowances and reliefs available.
So to prevent you having to navigate through the myriad of changes, read on for our main tax tips for the 2021/2022 tax year...
1. Utilise your ISA allowances
Up to £20,000 (£9,000 for a Junior ISA) comprising of a mixture of stocks and shares or cash, can be invested in an ISA allowing tax free investment growth.
2. Give income generating investments to your partner
Depending on the level of income of you and your partner, a brief review of how your investments are held can be a simple method of saving income tax by transferring investments to you partner in order for them to utilise various allowances:
If one of the couple has non-investment income in 2021/22 of less than £17,570, effectively the first £6,000 of interest income will be tax-free.
If one of the couple has non-investment income in excess of £17,570 there are still benefits to be had via the personal savings allowance, in that £1,000 interest is tax free for basic rate taxpayers and £500 is tax free for higher rate taxpayers £500 of interest is tax free.
If the investment is from dividends, an investment portfolio could be set up in joint names so each partner can take advantage of the annual £2,000 tax free dividend allowance, currently available to all irrespective of their level of income.
3. Gifts to charity
When a taxpayer makes a donation to registered charity tax HMRC top this up in a similar way as pension contributions (see below), in that a £80 net donation is boosted up by £20 by HMRC resulting in the charity receiving £100. In addition, if you are a higher rate or additional rate taxpayer further personal tax relief is available.
4. Transfer your some of personal allowance to your partner
If both partners are basic rate taxpayers it is possible to transfer 10% of the personal allowance to the other, where this is possible this can be a saving of £252 per tax year.
5. Pension Contributions
Contributions to a personal pension still offer very generous rates of tax relief, with a taxpayer paying in the net amount which is subsequently grossed up by HMRC. So effectively a taxpayer pays in £80 with HMRC paying in another £20, so £100 going into the pension pot. For higher rate taxpayers, a further £20 can be claimed back from HMRC, giving a net contribution in real terms of £60 to get £100 in your pension fund. There are further tax reliefs available for those earnings more than £100,000 whose personal tax allowances are restricted and pension contributions can create a super tax relief rate if their income is in between £100,000 and £125,400 and a pension contribution is made.
6. Contribute to your spouse or partner’s pension
Subject to certain qualifying criteria if a taxpayer’s spouse/partner is not in receipt of any taxable income, it can be efficient for tax purposes to contribute into a pension scheme on their behalf. Contributions can be made of up to £2,880 with HMRC topping up the balance to £3,600.
The benefits don’t stop there as any growth within a pension fund free from income tax and capital gains tax.
There are caps on the amount that can be paid into a pension and complex rules and not covered here.