As another tax year end approaches it’s important to finalize your end of year tax planning to reduce your tax bill wherever possible.

The current tax year ends on the 5th of April in the UK, so reviewing your tax affairs now will enable you to make the most of any allowable deductions and strategies available to minimize or mitigate your potential tax burden.

So in this article, I’m going to look at the end of year tax planning with a few tips that will help you to protect yourself, your family and your future.

To start with we need to identify any tax planning opportunities and personal circumstances may differ, so if you have any questions or if you have any particular areas that you are concerned about then please do not hesitate to contact.

If you have not done so already take the time to carry out a review of your own tax financial affairs to identify any tax planning opportunities and take action before it’s too late.

Here are my 12 tips to help you get ahead on managing your tax affairs (clicking on any of the tips will take you direct to that section in this article):

  1. Check your PAYE tax code
  2. Transfer part of your personal allowance to your spouse
  3. Contribute up to £9,000 into your child’s Junior ISA
  4. Individual savings accounts or ISAs
  5. Utilise any capital losses
  6. Maximize pension contributions
  7. Pay pension contributions to save national insurance contributions
  8. Make a will or review your existing wills
  9. Leave some of your estate to charity
  10. Make a regular inheritance tax free gifts
  11. Use the inheritance tax marriage exemption
  12. Make inheritance tax fee gifts each tax year

A video of this article is available if you would prefer to watch (see below). You can also just listen to it here, or simply read on below the video.

Tip #1 – Check your PAYE tax code

Your tax code is based on the amount of tax you should be paying and the amount you can earn before tax applies. The tax code is the identifier that tells you an employer how much tax should be deducted from your salary each time you get paid. If you have multiple employers or pension providers, you should get more than one tax code.

If you’re on the wrong one, you could be paying the tax man more than you ought to be. On the other hand you risk getting penalized if you are paying too little.

Tip #2 – Transfer part of your personal allowance to your spouse

Married couples and registered civil partners are permitted to share 10% of their personal allowances between them. Any unused allowance of one partner can be used by the other meaning an overall combined tax savings.

The amount you can transfer is £1,260 for the current tax year and a transfer is permitted if the recipient partner pays tax at a rate higher than the basic rate of 20%.

Tip #3 – Contribute up to £9,000 into your child’s junior ISA

The fund builds up free of tax on investment income and capital gains until your child reaches age 18 when the funds can either be withdrawn or rolled over into an adults ISA. Relatives and friends can also contribute to your child’s junior ISA, as long as £9,000 limit for the current tax year is not breached.

Tax-free savings and dividend allowances for the current tax year:

Savings income of up to £1000 is exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers.

Child Junior ISA

The tax-free dividend allowance is £2000 for all taxpayers. Married couples and registered civil partners could save tax by ensuring that each person has enough of the right type of income to make use of those tax free allowances.

Tip #4 – Individual savings accounts or ISAs

You can put the entire amount into a Cash ISA or a Stocks and Shares ISA, or an Innovative Finance ISA, or any combination of these three.

Usually when you invest you have to pay tax on any income or capital gains you earn from your investments. But with a ISA provided you stick to the rules on how much you pay in, all capital gains and income from your investments wouldn’t be taxed.

Every tax year you have an ISA allowance which is currently £20,000 for the current tax year.

(To find out more about ISA’s, click here)

Tip #5 – Utilise any capital losses

If you realize capital gains and losses in the same tax year, the losses are offset against the gains before the capital gains tax exempt amount, which is currently £12,300 is deducted.

Capital losses will be wasted if gains would otherwise be covered by your exempt amount,  so consider postponing a sale that will generate a loss until the following tax year. Alternatively realize more gains in the current year.

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Tip #6 – Maximize pension contributions

Pension contributions can reduce your tax liability by increasing the tax thresholds. The annual allowance for the current tax year is £40,000. To avoid an annual allowance charge, the pension contributions made by yourself and by your employer on your behalf, must be covered by your available annual allowance.

So, if you haven’t used all of your allowance in the last 3 years, it might be possible to pay more into your pension plan by carrying forward whatever allowance is left to make the most of the tax relief on offer. Though bear in mind the amount is still capped at 100% of your earnings. However different rules apply if you’ve already started to take money out of your pension plan and you are affected by the money purchase annual allowance, or if your income when added to your employers payments are more than £240,000.

Lifetime allowance is the limit on how much you can build up in pension benefits over your lifetime, whilst still enjoying the full tax benefits. If you go over the allowance you’ll generally pay a tax charge on the excess at certain times.

The lifetime allowance for most people is £1,073,100 in the current tax year and it has been frozen at this level until 2025/26 tax year.

The allowance applies to the total of all the pensions you have, including the value of pensions you have through any defined benefit schemes, final salary or career average schemes you belong to, and any savings you have in defined contribution pensions, but excluding your state pension. That’s a really great tip for you to be aware of.

This area can be quite complicated so I would always suggest you speak to an advisor to work out what your lifetime allowance is if you’ve got larger pension funds.

Tip #7 – Pay pension contributions to save national insurance contributions.

If you pay pension contributions out of your salary, both you and your employer have to pay national insurance contributions on that salary.

When your employers pays a contribution directly into your pension scheme, the employer receives tax relief for the contribution and there are no national insurance contributions to pay. So a saving for both you and your employer.

You could arrange with your employee to cover the cost contributions by foregoing part of your salary or bonus. You must agree in writing to adjust your salary before the revised pension contributions are paid for this arrangement to be tax effective.

Although pension contributions are not caught currently by the clampdown on salary sacrifice arrangements. Again, a very useful tip to make sure that you are making the most of any contributions via your employer, to save both them on you in terms of national insurance contributions.

Tip #8 – Make a will or review your existing wills

If you die without making a will your assets will be divided between your relatives according to the intestacy rules. Your surviving spouse or registered civil partner may only receive a proportion of your estate and inheritance tax will be due on 40% on anything else above £325,000 and up to £500,000 if the residence nil-rate band is available.

So again if you get this right and plan accordingly, you can save a lot of money by simply writing a tax efficient will. And also what I would suggest on there as well is that although it’s not really a sort of a tax savings, I would still always recommend that you consider putting in place powers of attorney both the property and finance one and also the health and welfare powers of attorney.

Tip #9 – Leave some of your estate to charity

When you leave at least 10% of your estate to charities, the inheritance tax on the remainder is charged at 36% instead of 40%. The exact calculation on your net estate is quite complicated so it’s important to receive professional advice when drawing up an amended will.

Tip #10 – Make a regular inheritance tax free gifts

As long as you established a pattern of gifts that can be shown to be covered by your net income, without reducing either your captal assets or your normal standard living then these will be free of inheritance tax.

The recipient of the gifts need not be the same people each year. Again, it’s another method or strategy I use for many of my clients, which is the easiest one to put in place. And again if circumstances change, those gifts can be altered.

Tip #11 – Use the inheritance tax marriage exemption

If your son or daughter is about to marry, you and your spouse, can each give them £5,000 in consideration of the marriage and the gift will be free of inheritance tax.

The marriage exemption can also be combined with your £3000 a year inheritance tax gift exemption to allow you to make larger gifts.

You can make an inheritance tax free gift of £2,500 for a grandchild’s wedding as well. And registered civil partners also attract the same exemptions.

Tip #12 – Make inheritance tax fee gifts each tax year

These gifts are free of inheritance tax and if you forget to make your £3,000 gifts one year, you can catch up in the next tax year by giving a total of £6,000 but you could only carry forward the £3,000 allowance for one tax year. But also remember you and your spouse or registered civil partner can each give that £3,000 of your capital each tax share in addition to gifts you make out of any irregular income.

That brings us to the end of this week’s episode, which I hope you found helpful and if you do have any questions on the tips I’ve briefly covered, then feel free to get in touch.

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