The easiest way to pay less tax is to plan ahead to avoid potential pitfalls and extra costs…
Tax planning might not sound like the most exciting way to spend your time, however it could have a significant effect on your finances. As the 2020/21 tax year draws to a close there are multiple considerations for what you can do to utilise your cash before the limitations reset as well as planning ahead for the future.
Salary Sacrifice – This is a tax-efficient method in regards to your Private Pension contributions or Share Scheme. The purpose of a salary sacrifice (aside from putting money away for the future) is to save and reduce on your Income Tax and National Insurance.
Pensions Annual Allowance – As long as you are not an additional rate taxpayer or have not already accessed your pension benefits, then you are entitled to make up to £40,000 worth of pension contributions per tax year. There might be opportunity to utilise your contributions for the 2020/21 tax year or any unused allowances from the three previous tax years.
Inheritance Tax and Gifts - You can give away £3,000 worth of gifts each tax year (6 April to 5 April) completely free from Inheritance tax. This is known as your ‘annual exemption’. In addition to this, any gifts to charity either during your lifetime or on death are completely exempt from inheritance tax.
You can carry any unused annual exemption forward to the next year - but only for one year. To see what else you can give away please check our blog here:
What can you give away before the end of the tax year?
ISA (Individual Savings accounts) - The purpose of an ISA is that it allows you to tax-efficiently save into either an investment account, savings account or lifetime (18-40) account. The benefit of an ISA is that the proceeds are protected from Income tax, Capital gains tax and dividends tax. If you have not yet invested the maximum £20,000 allowance it might be worth doing so.
Junior ISA - This will have to be set up on behalf of a child by their parent or guardian, however only the child will be able to access the money and this will not be permitted until they turn 18. There is a cap on how much can be put in each year, although the cap does rise in line with inflation.
CGT (Capital gains tax) – There are two different types of CGT, one for property and one for other assets. Although there is an annual cap on how much tax you can be exempt from;
- if your assets are owned jointly, you can use both of your allowances to double the exemption cap,
- if you are married or in a registered civil partnership, you can transfer assets to each other without being charged by CGT.
If you would like to chat to a member of your local
Moore (South) team, they will be able to assist and advise on how to review your financial and tax affairs, as well as identify current and future tax planning opportunities.