Your Tax Year End Checklist – 5 Key Areas to Review

I think it would be safe to say 2020/2021 has been a challenging tax year. Proceeded of course by a March that few of us will forget, pushing last tax year end’s planning right to bottom of the news agenda.

Nevertheless, here we are again, fast approaching the tax year end but perhaps a little more accustomed to dealing with this during the midst of a national lockdown. Before we reach the 5th of April and hopefully get back to catching up in person (fingers crossed), why not take this opportunity to review your finances and make the most of the allowances available.

  1. Have you used your ISA allowance?

ISAs continue to be incredibly popular for their simplicity. Putting your savings or investments within an ISA account keeps this money free from any worries of tax. This is a use it or lose it allowance, so make sure to act before the tax year ends.

In 2020/2021 you can shelter up to £20,000 using your ISA allowance. This can be split between a Stocks & Shares ISA, Cash ISA, Lifetime ISA or Innovative Finance ISA. Yet do note, the Lifetime ISA limit is capped at £4,000, which means if you max this out then you could put the remaining £16,000 into any of the other options. Where you are investing via an ISA, be sure to consider independent financial advice before proceeding.

For couples, this allowance means up to £40,000 could be sheltered within ISAs in a single tax year. If you are saving or investing for children, you might also consider the Junior ISA with an allowance of £9,000 this tax year.

  1. Have you considered pension contributions?

Pensions offer a tax-efficient way to invest for the future. You receive tax-relief on contributions, tax-efficient growth within the pot, and when it comes to accessing the money, 25% of the fund is available completely tax-free. The trade-off is that access is restricted until age 55 (which is due to increase to age 57 from 2028).

You can receive tax-relief on contributions of up to 100% of your relevant earnings (salary and bonus are the most common examples). You can only receive tax-relief on earnings in the current tax year, so be sure to make the most of the available relief. Higher earners could even help mitigate the impact of losing their Personal Allowance or Child Benefit payments via a pension contribution, so it is well worth considering. Employees might consider taking a bonus as a pension contribution if their employer is happy to arrange this, and business owners could consider taking profits as a pension contribution.

For those with lower earnings (below £3,600) or no earnings at all this tax year, you can still contribute up to £2,880 meaning that up to £720 would be added to your pension pot in tax-relief.

Alongside tax relief, you may need to consider the Annual Allowance. This limits contributions to £40,000 in the current tax year, but most of us can carry forward any unused Annual Allowance from the previous 3 tax years. This can be subject to complications including Tapering for higher earners and the Money Purchase Annual Allowance for those that have flexibly accessed pensions. This is an area where we strongly recommend that you seek professional advice.

  1. Could you make use of your Capital Gains Tax allowance?

When we sell something for a higher price than that at which we bought it, we create a capital gain. Most common things like our home, cars and typical household possessions are exempt from tax concerns. However, investments held outside of tax wrappers (such as a pension or ISA), properties other than our home and certain other items can become subject to Capital Gains Tax (CGT) when sold at a gain.

For gains that are potentially subject to CGT, we each have an allowance of £12,300 in 2020/2021. There are some clever ways to make the most of this allowance including switching between similar investments to realise a gain or making use of a spouse’s allowance by transferring assets between spouses. You can use capital losses to offset gains, with previous losses available to carry forward indefinitely if you have notified HMRC of the loss within 4 years of it occurring. CGT planning can be quite complex depending upon the circumstances so be sure to take professional advice.

  1. Could you reduce your potential Inheritance Tax bill?

Depending upon your stage in life and how much your estate is worth, now might be the perfect time to be generous and reduce your potential Inheritance Tax (IHT) bill. There are a number of IHT allowances which are tax year sensitive. Using these allowances might mean you can mitigate the 40% IHT charge on estates over £325,000 (although the Residence Nil Rate Band is now helping many people to remain outside of IHT issues, so it is worth checking your potential liability first).

There is the £3,000 gift exemption to start with. You can reduce your taxable estate here without any complications. You can also carry forward any unused gift allowance from the previous tax year.

There is also the £250 small gifts exemption. You can make as many outright gifts of up to £250 per individual per tax year as you wish free of IHT (provided the recipient is not also part of your £3,000 annual exempt amount).

You might also consider the gifting under ‘normal expenditure’ exemption. As long as you don’t impact your own standard of living, if you start up regular gifts of any amount, this is usually exempt from any IHT concerns.

Good record-keeping of any gifts will help make things a lot easier for the executors of your estate. IHT planning can potentially save significant amounts of tax so it is always worth having a professional review of your own circumstances if you have concerns.

  1. Give yourself a financial MOT

Making the most of tax allowances can help boost your finances and improve your outlook for the future. Take this chance to have a general MOT for your finances and see if there are any other areas you can take advantage of.

We have touched on some key areas here, but there are plenty of other little wins that you might find useful such as claiming the Marriage Allowance if you are married and your spouse is not using their full Personal Allowance, perhaps boosting your State Pension if you are nearing State Pension age and you are not likely to receive the full entitlement or even making the most of the Personal Savings Allowance/Dividend Allowance.

If you have worked from home this tax year, as so many of us will, you may also be eligible to claim tax relief. Why not have a quick look to see if you are eligible and claim online;

Ultimately, these quick wins can help you along the way, but having a solid financial plan will see you right for the long-term. If you are looking to get on track for 2021 and beyond, get in touch with Active Chartered Financial Planners today and make it happen.


The content of this blog is for information only and must not be considered as financial advice.  We always recommend that you seek independent financial advice before making any financial decisions.

Levels, bases of and reliefs from taxation may be subject to change.

The Financial Conduct Authority does not regulate taxation advice.  Active recommends you speak to a Tax Adviser/Accountant for this; Active would be happy to introduce you to one of our close partners.




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