As we reach the end of another tax year, here are a few last minute tips that might save you some tax before 5 April 2022.
Dividend and Interest Allowance
Dividend allowance is £2,000 per person. Interest Allowance is £1,000 for basic rate taxpayers and £500 for those at 40%. If a married couple can transfer capital or stocks and shares, they can make best use of these allowances. Transfers of assets between spouses are exempt from tax but watch out for settlement legislation if the shares are of a private company. Take advice if unsure
Annual Gift Exemption
Still unchanged at £3,000, per annum but you can carry unused allowance forward for one year (only) as well. A married couple making gifts could potentially gift £12,000 before 6 April and a further £6,000 days into the 2022/23 tax year if the allowances for 2020/21 are unused. This £18,000 gift could save your beneficiaries £7,200 Inheritance Tax. The gifts do not have to be cash but watch for Capital Gains Tax if they aren’t.
Gift Aid – low income
Gift aid works by transferring income on which you have paid tax to your chosen charity. The charity (being exempt from tax) reclaims the basic rate income tax you have suffered. If you have not paid enough tax in the year, HMRC will chase you for the balance. The solution is to wait until after the end of the tax year to see how much tax you have suffered and then make a gift aid donation. Gift Aid can be set back one year to be treated as if paid in the preceding year. This way you can tailor your donations exactly.
Gift Aid – high income
Gift Aid also saves higher rate tax too (as well as being able to preserve your allowances if you are over £100,000 gross taxable income). If your income fluctuates, you can use the same method of setting back donations to maximise higher rate relief. Check with your accountant how to do this as there are rules.
Capital Gains allowance
£12,300 for 2020/21. Can you make use of it before the end of the tax year? Specialist advice should be used if unsure.