5 Tips to Get the Best Tax Deal in 2021/2022

Back to News & Views

As the Covid restrictions are gradually lifted, normality is starting to appear on the horizon.

Throughout 2020 it was difficult to make plans for next week, let alone the rest of your life. But the new tax year, and the prevailing optimism, mean it is a great time to start planning and catch up on missed opportunities.

There are a number of ways that you can make your financial plan more tax efficient. The earlier you start planning, the more you can benefit.

So once you have celebrated and hugged your loved ones, why not make some plans to get the 2021/2022 tax year off to a good start.

Structure Your Income Efficiently

Everyone has a tax-free personal allowance of £12,570 per year, although this is reduced for anyone earning over £100,000. But there are several ways to make the most of your tax-free income, or even increase it. For example:

·        Marriage Allowance – a lower-earning spouse can transfer up to £1,260 of their tax-free personal allowance to their higher-earning partner (providing the partner is a basic-rate taxpayer), reducing the household tax bill by up to £252.

·        Personal Savings Allowance – you can receive tax-free interest on your savings. The amount is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. This allowance is not available to additional rate taxpayers.

·        Starting Rate for Savings – interest of up to £5,000 may be paid free of tax, providing this forms part of your total income, up to a maximum of £17,570.

·        Dividend Allowance – you can earn dividends of up to £2,000 per year from your own company or investments without tax liability. 

 

Use Your ISA Allowance

You can contribute up to £20,000 per year to an ISA. All income and growth is free of tax, and you can withdraw your money at any time without tax or penalty (LISA accounts vary). Depending on your circumstances, you may wish to contribute to a Cash ISA, Stocks and Shares ISA or even a Lifetime ISA.

If you don’t use your ISA allowance in a given tax year, you can’t carry it forward to the next year.

Regular, monthly contributions are the best way to use your ISA allowance, for the following reasons:

·        Your savings form part of your budget and take priority over discretionary spending. It’s likely that you’ll save more than if you wait until the end of the tax year to decide.

·        You can benefit from ‘pound cost averaging.’ Rather than trying to time the market, you are investing throughout the year. Even if the market falls, this can work to your advantage as your monthly contribution will buy more shares at a cheaper price.

·        It avoids leaving your contributions until the last minute.

 

Make Pension Contributions

Pensions are one of the most tax-efficient ways to save for the future, but many investors are not fully aware of the tax treatment. Early planning not only helps you take advantage of the benefits, it also ensures that you don’t fall into certain tax traps.

Here are some ways in which you can make the most of your pension:

·        Opt into your employer’s pension scheme. The reduction in monthly net income will be relatively small compared with the boost received to your pension.

·        Higher and additional rate taxpayers should check that they are receiving full tax relief on their contributions. If your contributions are paid by salary sacrifice, this will happen automatically. If you pay personally, you will need to reclaim the tax relief, either via your tax return or by contacting HMRC. If you pay via the ‘net pay’ method you do not need to claim tax relief

·        Making pension contributions can result in a lower income, and therefore a lower tax band. This is attractive for higher rate taxpayers, particularly so for those earning £100,000 - £125,140, as it can save tax at an effective rate of up to 60%.

·        You may be able to carry forward your pension contribution allowance from previous tax years. Contribution allowances are complex, particularly for high earners, so it is always best to seek advice if you are planning substantial contributions.

·        You can contribute up to £3,600 gross (£2,880 net) for a non-earning spouse or child. They will still receive 20% tax relief despite having no taxable income.

·        Take financial advice before taking benefits from your pension. This can help to reduce or avoid tax penalties, as well as making sure your income is set up in the most efficient way.

 

Use Your Capital Gains Exemption

If you sell any investments, other than those held within an ISA or pension, capital gains tax may be due on any profits. While this may be unavoidable, there are a few ways to minimise your liability:

·        Use your £12,300 exemption each year. This can be done by changing funds, rebalancing your portfolio, or transferring money from taxable investments into your ISA. By doing this, you avoid large gains rolling up and becoming taxable when you need to withdraw money.

·        You can transfer assets to a spouse, by way of a genuine gift without a capital gains tax liability. You then have two annual exemptions (£24,600) to set against gains.

·        Certain investments allow you to defer tax on gains realised from other investments, or avoid CGT altogether if you hold the investment for a certain period. These investments are very high risk, and should only be considered after taking advice.

 

Other Tax Savings

There are a few other options for saving on tax, either directly or indirectly, which many people are not aware of.

For example:

·        Tax-free childcare. This replaces the former Childcare Vouchers scheme. You can pay up to £8,000 per year into an account with HMRC. This will then be topped up to £10,000 providing you spend it on registered childcare.

·        Claim business mileage. You can claim 45p for every mile travelled (up to 10,000 miles) free of tax.

·        If you have to wear a uniform for work, you can reclaim the cost of cleaning and repairing it.

·        Your employer may offer an incentivised share scheme. Always check the scheme rules carefully, and only invest what you can afford.

 

By combining different strategies for saving tax, you could save thousands each year without any major changes to your lifestyle.

Please don’t hesitate to contact a member of the team if you would like to find out more about your options for saving tax.

Book your FREE, no obligation discussion today. Schedule Appointment

Sign Up to our mailing list - Receive regular news, tips and financial commentary from the Gemini Team.

Latest News

  • Just two out of five have planned for inflation in retirement Retirement planning can be complex at the best of times, so it is easy to understand how some people can find it daunting to take into account factors like inflation. The reality is that inflation hurts everyone, but it can be especially harmful to retirees. [...]

  • What’s the right emergency fund amount for you? An emergency fund is money you put aside to cover a financial shock. This could be losing your job, or a large, unexpected expense. Building an emergency fund can help prevent your needing to borrow money or make difficult financial decisions in those moments, by giving you savings to fall back on. [...]

  • 3 tips to maintain your financial wellbeing The rising cost of living is one of the most pressing issues facing many families today. The price of food, energy, fuel and other necessities has risen significantly in recent months. This has made it difficult to make ends meet and has put a strain on many household budgets. [...]

  • How to maintain your financial wellbeing As interest rates continue to rise, there are a few things that you can do to make sure your personal finances remain in good standing. It is always important to remain on top of your finances, but especially during times of rising interest rates, as many people start to feel the squeeze. [...]

  • Inflation, political and general economic impacts There are a number of factors to consider when deciding whether or not to delay your retirement. Inflation is one important factor. Over time, the purchasing power of your money can decrease significantly, making it harder to maintain your standard of living in retirement. [...]

  • 1 week ago

    What investors need to know The global stock markets can be highly volatile, with wide-ranging annual, quarterly, even daily swings. Although this volatility can present significant investment risk, when correctly harnessed, it can also generate solid returns for shrewd investors. [...]

  • What really important retirement questions should you be asking? As you approach the last five years before your retirement, there will be a lot of things to consider. You’ll need to think about your finances, your health, your housing situation and your plans for the future to live comfortably in retirement. [...]

  • No one-size-fits-all answer to this question When is the right time to retire? There’s no one-size-fits-all answer to this question – it depends on your personal circumstances. However, there are a few things to consider that may help you decide when the right time for you is. [...]

  • Planning for your wealth preservation and the eventual transfer of that wealth When you’ve worked hard and invested carefully to build your wealth, you want to look after it. That’s why it’s important to plan for your wealth preservation and the eventual transfer of that wealth. [...]

  • Planning for your wealth preservation and the eventual transfer of that wealth When you’ve worked hard and invested carefully to build your wealth, you want to look after it. That’s why it’s important to plan for your wealth preservation and the eventual transfer of that wealth. [...]

  • 10 practical steps to ensure your money is working hard for you In these uncertain times, it’s more important than ever to make sure your finances are in order. The Bank of England believes that a painful squeeze on our living standards, driven primarily by soaring energy prices, is set to intensify and will push the UK economy into recession later this year. [...]

  • 3 weeks ago

    More than half ignore medical advice and work despite poor health due to financial worries When you are off work due to an illness or injury, worries about how you are going to pay your bills can make an already stressful situation worse. So much so that many people are finding themselves in the very difficult position of having to put the need to earn money over their health by continuing to go to work, even when advised not to by a doctor. [...]

Gemini Wealth Management Ltd is Authorised and regulated by The Financial Conduct Authority Registered in England & Wales No. 5919877 Registered Office: Gemini House, 71 Park Road, Sutton Coldfield, West Midlands B73 6BT The Financial Conduct Authority does not regulate tax and trust advice, will writing and some forms of buy to let mortgages. The guidance and/or advice contained in this website is subject to regulatory regime and is therefore restricted to those based in the UK.

Website by Mellow Marsh Software
© Gemini Wealth Management Ltd
Privacy Notice | Cookie Policy