Weekly Spotlight: Five things to do before tax year ends

The timing of the Easter holidays this year makes it more important than ever to remember the end-of-tax-year deadline and to take action quickly.

Easter Monday falls on April 5, which is also the end of the tax year. This means most of us will need to get any changes we want to make in the 2020/21 tax year done well in advance because of the two bank holidays on Good Friday and Easter Monday. The good news is that, if you act now, there’s still time to make some decisions that could reduce your tax bill and leave you better off. Here are some of the most important things you could do.

Top up your ISA

Everyone can invest or save £20,000 into an ISA every tax year, so it makes sense to do this, if you can, to shelter money from the taxman going forward. Once the money is in an ISA you can switch it between savings and investments, and between different providers at any time, so the important thing is to get it into the ISA wrapper before the tax year ends.

Make a pension contribution

Everyone can make £40,000 of pension contributions each year, and reclaim the income tax paid on the money. Non-taxpayers can also benefit from tax relief on £2,880 of pension contributions each tax year, meaning that it can be tax efficient to set up a pension for a child or spouse.

Making the most of your pension annual allowance is a very tax efficient thing to do in almost every situation. For those with children though, it can have an extra benefit if they can make a contribution that takes their income below the threshold for losing some or all of their Child Benefit (between £50,000 and £60,000). If you aren’t sure if this would make a difference to you, it is worth speaking to a financial adviser. 

Crystallise gains below your CGT allowance and reinvest

You can make £12,300 of gains this year without paying Capital Gains Tax, but there are already rumours that allowances might be cut or tax rates raised going forward so if you have investments outside an ISA it makes sense to sell some of them to ensure that you use up your allowance.

If you want to remain invested you can always sell investments and then buy them back inside an ISA wrapper, a process known as Bed and ISA, as long as you have enough of your £20,000 a year tax allowance left to use. Buying back the investments in an ISA has an extra benefit in that you will also be paid dividends free of tax.

Everyone can earn £2000 a year from dividends without paying tax on it, but after this, and at the higher rate the tax rate is 32.5 per cent, rising to 38.1 per cent for additional rate taxpayers. Investments in an ISA do not attract this tax, however, and even if you do not get £2000 of dividends at the moment there is always the possibility that you may do so in future.

Transfer assets to a spouse

If you are married or in a civil partnership, you can take advantage of the tax-free ability to shift assets between spouses to pay less capital gains tax and make the most of tax allowances.

That means you could switch some of your investments to your partner before selling them so that you can take advantage of two sets of capital gains tax allowances, (£24,600 in total) and £40,000 of annual ISA allowances.

Make lifetime gifts

Everyone has an annual gift allowance, an amount they can give away in the knowledge that it won’t be subject to inheritance tax. Other gifts may be counted as part of your estate if you die within a seven-year window of giving them.

The gift allowance is £3000 a year, so it makes sense to make these gifts every tax year if you are concerned about IHT.
    
Given the complexities frequently involved in financial planning, it might be worth considering using the help of a financial adviser. Having an expert to help you plan and manage your investments to achieve your goals can pay considerable dividends, in particular in the long run.