Tax year-end planning: Things to consider

15th February 2021

The end of the tax year, 5th April, is fast approaching. It’s important you take time now to review your finances and ensure you are making the most of your money and don’t miss out on valuable tax-efficiencies and allowances that your future self will thank you for.

Making the most out of your current tax allowances and reliefs now, will go a long way to helping you secure your long-term financial goals in the future. Your goals may seem far away but taking the right financial steps now can help you get there.

We’ve put together a checklist below of things you need to be thinking about prior to the tax year-end.

Make use of your pension allowance 

You can pay up to £40,000 into your pension each year. You can also carry forward any annual allowance you didn’t use up from any of the previous three years.

However, it can be reduced to £10,000 due to the ‘Tapered Annual Allowance’ if you are a high earner or have flexibly accessed your pension. Careful consideration should be given as tax relief may not be available should you exceed your available allowances or your contributions exceed your net relevant earnings.

Pay into your spouse’s or child’s pension

You can give a head start to children or a non-working spouse and set up a pension plan for them. You can pay up to £2,880 each tax year, receiving a 20% tax relief from HMRC. This would top up the maximum each year to £3,600.

Make the most of your Individual Savings Account (ISA) allowance

You can pay up to £20,000 across your ISAs (if you’re a couple, that’s £20,000 each), including cash ISAs, stock and shares ISAs and lifetime ISAs.

These valuable tax efficient allowances are an important step to creating wealth in the future, so don’t let them go to waste.

Use up your Lifetime ISA allowance

You can pay up to £4,000 every tax into a Lifetime ISA and earn a 25% bonus from the government on it (if you save the maximum, you’ll get a bonus of £1,000 every year).

If you haven’t already opened one, you can only do so before turning 40, and continuing paying (and earning the bonus) until you turn 50. You can use this to go towards buying a house or retiring.

Keep in mind this £4,000 goes towards your annual ISA allowance, which for the 2020/21 tax year is £20,000.

Pay money in your child’s Junior ISA

For each child, you can pay up to £9,000 into a Junior ISA for the 2020/21 tax year. Anyone can pay into it, but it must be set up by someone with parental control.

Utilise your Capital Gains Tax (CGT) allowance

CGT is charged on the profits made when certain assets are sold or transferred. You pay tax on the gains made above your annual tax-free CGT allowance, which for the 2020/21 tax year is £12,300.

To take advantage of it, you may want to think about selling some of your assets by 5th April, as it cannot be carried forward.

You could also gift assets to your spouse so they can make the most of the CGT allowances, or pay a lower rate of CGT.

Give gifts and reduce your Inheritance Tax (IHT) Bill

IHT is charged at 40% on estates over £325,000, and an extra £125,000 given against main residences. Each tax year, there are a number of IHT allowances that are tax year sensitive. Using them can reduce any potential IHT bills payable on your death. Each tax year you can:

  • Gift up to £3,000 using your ‘gift allowance’. If you don’t use your full gift allowance, you can carry the remaining forward to the next tax year
  • Gift up to £250 per person
  • Gift £5,000 to a child getting married, or £2,500 to a grandchild