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Changing tax landscape

July 2021

by Anthony Bruchez

Time to take a different view and organise your financial affairs?

Tax planning should enable you to arrange your affairs in ways that postpone or legally avoid taxes. By employing effective tax planning strategies, you could have more money to save and invest or more money to spend. Or both, your choice.

You may consider organising your financial and tax affairs to make the most of the tax-free allowances available to ensure you’re not paying more tax than you need to.

Keeping up with the latest changes to your tax and pension allowances can be difficult, so we’ve provided a summary to help you manage your tax affairs. The UK tax year starts on 6th April each year and ends on 5th April the following year.

How much is the Income Tax personal allowance in 2021/22?

The Income Tax personal allowance is £12,570. This is a slight increase from the previous year; in 2020/21 the personal allowance was £12,500.

The Income Tax personal allowance has been frozen until 2026, meaning that there will be no more increases until the tax year 2026/27.
 

What are the Income Tax bands for 2021/22?

The upper limit for the basic rate tax band in England, Wales and Northern Ireland is £50,270. Again, this is a slight increase, from £50,000 the previous year. The basic rate of income tax remains at 20%

The higher rate tax band and the additional rate tax band remain the same for the 2021/22 tax year. Income above the basic rate tax band but below £150,000 is taxed at 40%, and income exceeding £150,000 is taxed at 50%.

In Scotland, the bands are slightly different. The personal allowance is the same, and income of between £12,571 and £14,667 is taxed at 19% (starter rate). Income between £14,668 and £25,296 is taxed at 20% (basic rate). Income between £25,297 and £43,662 is taxed at 21% (intermediate rate). Income between £43,663 and £150,000 is taxed at 41% (higher rate) and income over £150,000 is taxed at 46% (top rate).
 

How much is the pension annual allowance in 2021/22?

The pension annual allowance is £40,000. This is the limit on how much you can contribute to your pension while claiming tax relief. Contributions above this limit are not eligible for tax relief.

Not everyone is entitled to the full annual allowance:

  • If you earn less than £40,000 a year, you are only entitled to claim tax relief on your pension contributions up to a maximum of 100% of your earnings.
  • If you earn more than £240,000, you’ll likely be affected by the ‘tapered’ annual allowance, which reduces by £1 for every £2 you earn above this threshold.
  • If you have accessed your pension, you may have triggered the money purchase annual allowance, which is £4,000.
  • You are also allowed to ‘carry forward’ unused pension allowance from up to three previous years. In the three most recent tax years, the total annual allowance was also £40,000.
     

    How much is the pension Lifetime Allowance (LTA) in 2021/22?

    The pension Lifetime Allowance (LTA) is £1,073,100. This is the limit on how much you can withdraw from your pension savings in your lifetime before you incur an additional tax charge.
     
    The pension LTA has been frozen until 2026, meaning that there will be no more increases until the 2026/27 tax year.
     

    How much is the State Pension in 2021/22?

    The State Pension is £179.60 a week. That’s an increase of £4.40 a week from 2020/21 or £228.80 more across the whole year.
     
    To claim the full State Pension, you must have 35 qualifying years on your national insurance contributions record. If you have fewer than 10 qualifying years, you won’t be entitled to any State Pension.
     
    You may be able to make voluntary contributions to record more qualifying years of national insurance contributions.
     

    How much is the Individual Savings Account (ISA) allowance in 2021/22?

    The personal Individual Savings Account (ISA) allowance is £20,000, which is the same as the previous tax year.
    This means that you can save or invest up to £20,000 in one ISA or two or more ISAs of different types, and any growth on your savings or investments is free from Income Tax and Capital Gains Tax.
     

    How much is the Capital Gains Tax allowance in 2021/22?

    The Capital Gains Tax allowance is £12,300. This is the same as the previous year. It has been frozen until at least 2026.
     

    How much is the Inheritance Tax Nil-Rate band in 2021/22?

    The Inheritance Tax Nil-Rate Band is £325,000. This is the same as the previous year.
     
    When giving away property to a direct descendant there is an additional allowance called the Residence Nil-Rate Band, which is currently £175,000.
     
    The Residence Nil-Rate Band was due to rise with inflation in April 2021, but both thresholds have been frozen until 2026. It still means, however, that married couples and registered civil partners can give away up to £1m free of Inheritance Tax.
     

    If in doubt, get advice

    Further information on personal tax allowances can be found at gov.uk.

    Tax can be a complicated and changeable topic to fully understand and professional advice is recommended. Please speak with your financial adviser for more details or contact us.

     


    Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.
    The Financial Conduct Authority does not regulate Tax Advice, Estate Planning or Will Writing.
    The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.
    Pareto Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.
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