How tax efficient are you in 2021? Review it before this tax year end

With the tax year end soon approaching on 5 April 2021, this is a good time to review your tax situation to see how you can optimise your tax efficiency. A year-end tax review is particularly useful this year given all the events last year leading to significant government spending.

Below are a few areas you should look at:

Pension Planning

For many years investing into a pension fund was seen as something less than dynamic. However, with the challenges by HMRC over the last decade with regards to aggressive tax planning, pension planning is back in vogue.

There has been in recent years regular comments that the Chancellor may restrict tax relief on personal contributions to the basic rate of income tax which at present is 20%. With the Budget scheduled for early March 2021, you may wish to bring your pension planning forward. Remember, employer contributions are relievable against corporate profits.

The pandemic has cost the treasury billions of pounds in terms of support. At some point an attempt will be made to repay the financial support given. An obvious target in this regard will be capital taxes.

Capital Gains Tax (CGT)

If you have an investment portfolio, make sure your adviser is utilising your annual exemption which for 2020/21 is £12,300. Consider transferring investments to your spouse/civil partner to utilise both exemptions.

There has been a debate on whether the annual exemption is too generous. Impending property transfers should be pushed along at an early date, preferably before the Budget on 3 March 2021. However, be aware of the new residential property capital gains tax rules where the CGT has to be paid within 30 days of completion.

CGT on other asset disposals have the following payment dates:

• Year ending 5 April 2021       —– 31/1/22
• Year ending 5 April 2022     ——–31/1/23

If you plan to sell a second home or business asset in 2021, find out more from this article about applicable Capital Gains Tax, as well as (for those in business) how you can use Business Asset Disposal Relief to offset part of that CGT.

Inheritance Tax (IHT)

At present, most lifetime gifts do not attract an Inheritance Tax liability as a result of the 7 year rule. However, there is speculation the Chancellor may introduce a 10% lifetime rate. Therefore, it is suggested that any planning at present being considered is progressed at an early time. Again, this is mentioned in the light of the Chancellor’s Budget in early March 2021.

Finally, don’t forget the annual gift allowances available.

If you have any questions or would like to discuss your specific situation, please get in touch with us at [email protected]. One of our advisers will get back in touch with you as soon as possible.