We have now said goodbye to a year that will be remembered for a lot of the wrong reasons.
Despite entering a third lockdown, the light at the end of the tunnel in terms of returning to a sense of normality is beginning to get closer with the number of vaccinations increasing. However, one thing that will certainly remain is tax.
As we kick-off 2021, some areas for consideration as we speed towards the new tax year are listed below.
Utilising your £20,000 ISA allowance is one of the first points of call for savers, particularly Stocks & Shares ISAs with interest rates on cash likely to remain low for a long time yet.
For parents and grandparents, Junior ISAs for those under 18 are often overlooked. With the annual allowance now being £9,000 per annum, considerably higher and more beneficial than it has been historically, it can go a long way to providing a substantial fund towards their education, a car, or deposit on a property.
The annual allowance of £40,000 for pension contributions has been in place for some years now, but pensions as an investment vehicle remain one of the most tax efficient.
Personal contributions – Individuals
Despite its existence being subject to regular speculation in the media, individuals can still get tax relief at their marginal rate on their personal contributions, up to 100% of their earnings.
For those with a tapered Personal Allowance, or in receipt of Child Benefit, pension contributions can also be useful in ‘reinstating’ your Personal Allowance or ensuring that you are still eligible for Child Benefit.
Employer contributions – Directors
Making Employer contributions is one of the most tax efficient ways of getting money out of a business, with it being deductible and reducing your corporation tax liability.
You are also not limited to the 100% of salary rule, and being able to carry forward the previous three years of the Annual Allowance can also be very advantageous.
The pandemic will potentially lead to dip in value on commercial properties, so property purchase through a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS) may also be a key consideration.
Capital Gains Tax
The tax that is subject to constant press coverage as the likely candidate for an overhaul in this year’s budget.
Whilst none of us have a crystal ball, for anyone with direct share/fund holdings, second/rental properties and other assets subject to Capital Gains Tax, you may want to consider reducing your exposure whilst the Annual Allowance is £12,300 per individual.
Remember that losses can also be offset against potential gains, and also carried forward.
Other reliefs such as ‘holdover relief’ are also available, but giving due consideration before any changes are introduced is a must.
Annual gift allowances can be a good way of passing on wealth to the next generation with no immediate or future tax implications.
The most common allowance of £3,000 per tax year, which can be carried forward from the previous tax year if un-used, can form part of a wider inheritance tax planning strategy, ensuring that your wealth is maximised for the next generations.
The above summary really is just a drop in the ocean in terms of wider tax planning, and many areas of tax planning will be interlinked in some way – don’t leave anything to chance, our consultants are here to help and available for an initial discussion via telephone, MS Teams or Zoom, with no obligation.