Year End Tax Planning 2021/22

As a new tax year approaches, it is important to ensure you are in the best financial position to help protect and grow your future wealth.

Our Bitesize Tax Planning provides you with details of the key allowances and reliefs available to you. The tax planning tips are available in easy to consider sections.

This article looks at Saving tips for higher earners.

Reducing your tax bill

Income over £150,000 per annum is taxed at 45%. However, because you lose the personal allowance, income between £100,001 and £125,140 is taxed at an effective top rate of 60%.

Tips to reduce your tax bill:
  • Individuals with income near these thresholds could mitigate their tax liabilities by reducing their taxable income. This could be done by making pension contributions or payments to charities. Include them on your tax return as a higher rate taxpayer, in order to get the tax relief.
  • If your private pension payments is made via a salary sacrifice scheme you could reclaim an additional 20% or 25% tax on your pension contributions. This is using a Self Assessment tax return.
  • CGT is charged at 10% or 20% depending on your circumstances. Consider transferring assets to a spouse or civil partner who may pay tax at the lower rate. The transfer must be a genuine and outright gift.
  • Current low CGT rates favour converting income-producing investments into capital appreciating assets such as real estate, stocks, bonds, and currency. Be mindful for changes in Government policy and take advice before making any changes.
  • You may be able to transfer private company shares to use exemptions and rate bands of your spouse, civil partner or other family members. However, please seek advice about any tax consequences of doing this before proceeding.
  • Consider transferring income-yielding assets to your spouse or civil partner who may pay tax at a lower rate or pay no tax at all. If this isn’t possible, ask your adviser for ways to turn your income into more tax-efficient forms.
  • If you own a trading business, Business Asset Disposal Relief (previously Entrepreneurs Relief) can reduce your rate of CGT to 10% on gains on qualifying assets. Up to a lifetime limit of £1 million capital gains. The rules are complex, and most planning needs to be in place two years before disposal.
  • Investors’ Relief reduces the amount of CGT on a disposal of shares in a trading company that is not listed on a stock exchange. This applies to shares that are issued on or after 17 March 2016. As long as the shares have been owned for at least 3 years up to the date of disposal. It is not usually available if you or someone connected with you is an employee of the company. Qualifying capital gains for each individual are subject to a lifetime limit of £10 million.

For more information, saving tips or to discuss the best and most appropriate methods for your personal circumstances and long-term goals, please contact your adviser, or call us directly on 0161 819 1131.

See the other topics in our Bitesize Tax Planning series:

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.