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10 tax year end tips to help save £1,000s

Written by: Ben Yearsley
The end of the tax year is fast approaching so there’s just a month to sort out your finances to take advantage of all the tax-efficient allowances available to you.

Every year many investors lose out on valuable tax-efficient allowances by leaving things too late.

These 10 tips should help you make the most of them ahead of the 5 April cut-off point:

Use the capital gains tax allowance

This is one of the most underused tax allowances, but up to £12,300 is available to all, tax-free every year. Be clever with this allowance. If it gets near the end of the tax year, and the allowance hasn’t been used, then why not look at your portfolio and see if there are alternatives to those investments bulging with gains. Many use this allowance to generate a tax-free income, have a look at these common tax errors.

Use your ISA allowance

Still one of the best allowances. £20,000 is a generous limit that can give tax-free growth and income. On a typical dividend yield of 3%, £600 of income could be generated tax-free each year.

Contribute to a pension where possible

Upfront tax relief, tax-free growth and potentially inheritance tax-free status are three benefits of contributing to a pension. The down side is taxable income when the pension is taken and having your capital tied up until at least the age of 55. Non-earners also have an allowance of £2,880 each tax year, which is topped up by £720 of tax relief (£3,600).

Make use of your spouse’s allowances

Many high earners have non-earning spouses. If that’s the case, organise your affairs tax efficiently so that their valuable tax-free allowances aren’t lost. Their personal allowance of £12,570 and capital gains tax allowance of £12,300 could be used by transferring assets to their name.

Consider Junior ISA and pension contributions for children/grandchildren

Children also get their own long-term annual investment allowances. Make use of the Junior ISA allowance of £9,000 and the pension allowance of £2,880 before 5 April.

Don’t forget your tax-free dividend allowance

Everyone gets a £2,000 tax-free dividend allowance; it might not be as high as it used to be, but it’s still a valuable allowance. Especially useful for small business owners who can time when they take dividends.

Don’t forget the transferable marriage allowance

The Marriage Allowance lets you transfer £1,260 of your personal allowance to your husband, wife or civil partner. It only works when one is a non-taxpayer and the receiving partner needs to be a basic rate tax payer. It could save £252 this tax year. You can also backdate this allowance. (The rules are slightly different in Scotland).

Use your annual gift allowances to reduce your estate

Everyone can legitimately reduce the value of their estate each year by gifting assets within specified limits. For those with larger estates this could be particularly useful.

Some gifts are exempt from Inheritance Tax especially those made more than seven years before the person died.

Gifts of £3,000 or less in any tax year are also exempt from IHT.

Charitable donations

Charitable donations, as well as doing good, also attract tax relief via Gift Aid. If you are considering being generous, consider which tax year you do it in and remember to tick the Gift Aid box. This ensures your chosen charity benefits and if you are a higher rate (or additional rate) taxpayer, you can also reclaim some tax.

Consider ways to reduce income tax by investing in VCTs, EIS, SEIS

For high earners who have already maxed their ISA and pension allowances, more specialised higher risk investments are available that can help reduce income tax bills, capital gains tax bills, produce tax-free growth and income.

A total of £1.3m could be invested in these three investments this tax year offering a tax rebate of £410,000 (for those lucky enough to earn that much!). You can also use EIS/SEIS to reclaim tax from the 2020/21 tax year. See’s VCT and EIS guide for more information.

Ben Yearsley is director of Shore Financial Planning

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