By Cathrin Richards 

As the end of the tax year fast approaches, Cathrin Richards, partner at Azets, provides some top tips when considering your personal tax affairs. 

Are you aware of all the tax reliefs and allowances that you may be entitled to? If you are unsure, then you are probably paying more tax than necessary.

As the end of the tax year approaches on 5th April 2022, now is the time to act to potentially reduce your tax liability.

Plan for the National Insurance and dividend tax increase from April 2022

A 1.25 per cent National Insurance (NI) and dividend tax increase applies to remuneration and dividends from 6th April 2022.

Family businesses in particular should, subject to commercial considerations, consider the level of remuneration and dividend distributions for 2021/22. Bringing forward, for example, a dividend payment to before 6th April 2022 will save the additional 1.25 per cent charge, although the personal tax due on the dividend will be payable by 31st January 2023.

Thinking about getting a new car?

If you are able to choose a new company car for the year, it may be worth considering changing your car to a model with lower emissions to save tax. But be very careful, as not all new cars are equal, particularly when looking at traditionally fuelled vehicles.

If you choose to go for a car which is fully electric, for 22/23 the proposed benefit in kind is two per cent, where it will stay for 2023/23 and 24/25. If also considered as part of a salary sacrifice arrangement, the tax savings can be significant.

Of course, the cheapest option of all is to have an employer provided bicycle (cycle to work scheme), because, provided these are available to all employees, this does not give rise to an employment benefit at all, saves you and your employer tax, and may greatly benefit your health.

Don't pay your Capital Gains Tax

While conscientious objection to paying tax is not an advisable move, if you sell a qualifying type of asset during 2021/22 that has been used in your business and you realise a capital gain, it is possible to put off payment of the tax by reinvesting the proceeds in another qualifying asset. In simple terms, a gain can be rolled over if you buy another qualifying business asset within three years and will only become payable on the subsequent disposal of the replacement asset.

Another way to delay paying tax, or to even remove gains from a charge to Capital Gains Tax (CGT), is through an investment in EIS where proceeds from disposal of any asset are reinvested into a company qualifying for EIS deferral relief. Qualifying conditions of course would need to be met to obtain this relief, but the deferral relief can still be secured where the more stringent conditions for obtaining the valuable EIS income tax relief are not satisfied

Maximize the advantage of marriage

Consider the extra tax benefits you can get if you are married (or in a civil partnership) to your significant other. Alongside tax-free or tax-neutral transfers between partners for inheritance tax and capital gains tax purposes, you could, in certain circumstances, get extra cash from HMRC as a consequence of being married.

The Marriage Allowance can be claimed in certain instances to transfer a portion of a spouses unused personal allowance, where the qualifying conditions are met.

Further, sharing income-producing assets between spouses is a legitimate way of reducing overall income tax liabilities. This could work with investment properties and any other income-producing assets such as shares. However, beware if transferring properties subject to a mortgage, in case of a nasty stamp duty aftershock. Ensuring a split of shares between spouses also gives the opportunity for each to take advantage of the £2,000 tax-free dividend allowance.

At the more dramatic end of income tax, the additional rate of tax (45 per cent in England, Northern Ireland and Wales, 46 per cent in Scotland) kicks in where income exceeds £150,000, meaning that if assets could be gifted to a basic rate tax-paying spouse, annual tax savings of 25 per cent can be achieved.

Clearly the commercial implications of any transfers would need to be weighed up alongside any potential tax upsides.

Review your pension contributions

The limit on which an individual can claim income tax relief on pension contributions (the total of personal and employer contributions) is currently £40,000. An individual must also have taxable earnings at least equal to the amount of their personal contributions.

While you can claim relief at your marginal rate of tax, basic rate 20 per cent tax relief is given automatically on personal pension contributions, meaning this amount will also pass automatically into your pension.

The further relief available to higher and additional rate taxpayers should be claimed on your tax return, (unless a salary sacrifice pension, as relief is given at source). Note that the annual allowance is restricted for certain high-earning individuals.

If you have not made full use of your pension allowance in previous years, you could also make additional contributions greater than £40,000 in the current year.

When considering making payments to your pension, it is recommended to speak to an Independent Financial Advisor for advice on this.

The above are just some of the things to consider when reviewing your personal tax affairs. Please note this is not advice and you should take advice in respect of your specific circumstances.

In our latest guide, we summarise the different tax-saving options available, profiling the different measures you should consider to maximise your tax efficiency, which could lead to those all-important cash tax savings. Our guide sets out relevant considerations for Income Tax, Capital Gains Tax, and Inheritance. 

Download our Personal Year End Tax & Financial Planning Guide.

For further information on any of the areas we have covered, please contact Cathrin Richards at Cathrin.richards@azets.co.uk.