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Top five tax planning tips - Kate Thorburn of Randall & Payne

By Kate Thorburn, private client tax manager at Randall & Payne 

Now is the perfect time to review your tax position and ensure that you are maximising all available tax reliefs for the current tax year, ending 5th April 2022.

The 2021/22 tax year has seen the final retirement of loan interest relief against residential property income and has been a record year for wage growth. You may now find that you have considerably higher levels of income than in prior years, and, without realising it, you could now find that you have tipped over into the higher/additional tax bands and your entitlement to allowances are now lower.

The downside to this, other than a potential higher rate tax liability, is the knock-on effect on certain benefits and allowances. For example the savings income allowance, is £1,000 for those paying tax at basic rate, but this is reduced to £500 for higher rate taxpayers.

Another one to watch out for is the high-income child benefit charge, if your income exceeds £50,000 the benefit is clawed back at a rate of one per cent of the benefit for every £100 of income earned over. Again, a slight rise in wages, or the effect on rental income could mean you face a larger tax bill when you are required to pay back excess child benefit received.

Furthermore, if your income exceeds £100,000 your personal allowance is reduced by £1 for every £2 of net income over £100,000, meaning that income between £100,001 and £125,000 has a whopping effective rate of 60 per cent. If you are nearing the income threshold you should consider trying to reduce your taxable income below £100,000.

Here are our top planning points to consider as the tax year-end approaches:

1. Making Gift Aid donations

The benefit of giving to charity is twofold, you are helping a charity that is close to your heart while receiving extra tax relief. Win-win! It is likely that most will only consider their gift aid donation of cash, however, gift aid donations can also include gifts of goods to charity shops.

It is also worth considering accelerating any Gift Aid donations you are planning to make during 2022/23 to ensure they are made before 31 January 2023, rather than April 5. This is because donations made prior to completing your 2021/22 tax return (due 31st January 2023) can be treated as if they were made in 2021/22.

If you were considering selling shares to give the money to charity, it is possible to give listed shares to a charity instead.

2. Make pension contributions

Making personal pension contributions or exchanging a proportion of your salary in return for employer pension contributions can help to reduce your taxable income.

Basic rate 20 per cent tax relief is given automatically on personal pension contributions, this means that this amount will also pass automatically into your pension. Higher rate and additional rate taxpayers can claim further relief on their tax return, unless this a salary sacrifice pension, as relief is given at source.

3. Claim your WFH allowances

Working from home (WFH) has become the new norm for many with employers asking employees to stay home and work to reduce the impact of COVID-19. This may have resulted in your household costs increasing and if you have not been able to recover these from your employer, you are eligible to claim working from home tax relief at a rate of £6 per week.

4. Sharing assets between you

While marriage shouldn't be entered into just to gain a tax benefit, it is a welcomed bonus. Spouses can generally transfer assets between themselves free of inheritance or capital gains tax. Furthermore, the split of shares between spouses also gives the opportunity for each to take advantage of the £2,000 tax-free dividend allowance.

While transferring income-producing assets such as investment properties and shares between spouses is a legitimate way of reducing overall income tax liabilities, tax advice should be sort.

5. Gifts

When it comes to Inheritance people aren't normally aware there are annual allowances for IHT just like income tax and CGT.

If you are looking to reduce the value of your overall estate, each year you can gift £3,000 free of IHT, and if you have not used the previous year's amount, you can use that to gift up to £6,000 in the year.

In addition, there is a small gifts exemption of up to £250 per person per year, beware, if the £250 is breached, the whole amount becomes chargeable.

If you would like a no-obligation discussion about your personal tax affairs to ensure you are effectively using the allowances available to you before the 2022 deadlines, please call Kate Thorburn on 01242 776 000 or email kate.thorburn@randall-payne.co.uk.

Randall & Payne offers an hour-long advice clinic free-of-charge to assess your circumstances and let you know the best way forward.

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