How can it be the end of another tax year? The pandemic seems to have sucked us all into some sort of time warp where 12 months seems to drag, yet flash by at the same time. The fact remains the end of the tax year is fast approaching! It’s a busy time for all of you but try and take a moment to ensure your finances are as tax efficient as possible. Take a look at our tax planning guide below – April 5th will be here in a flash – so don’t delay!
1. Use your ISA allowance
Everybody has an ISA allowance of £20,000 for the 2020/21 tax year. Your children have their own allowance of £9,000 each p.a. too. If you aren’t aware of the different types and want to get up to speed quickly why not take a look at our recent ISA article: Are you up to speed with ISA’s >
Of course, you do have another ISA waiting for you in the next tax year but if you don’t use this one you WILL lose it!
There are very few things in this world that are tax-free, so making the most of your annual tax-free ISA allowance is an opportunity no-one should miss if they can help it.
While you’re at it, why not set up a regular monthly payment into your ISA for the next tax year? If nothing else, it’ll mean one less thing to do this time next year!
2. Reduce your inheritance tax bill
All doctors and dentists can give away £3,000 a year without any inheritance tax liability. If you didn’t use your £3,000 gift limit last year, you can carry this forward and gift a total of £6,000 inheritance tax-free this tax year.
And that’s not all. You can gift:
- As many small gifts of £250 as you like.
- £5,000 to your children when they get married or enter into a civil partnership.
- £2,500 to your grandchildren when they get married or enter into a civil partnership.
- £1,000 to anyone else when they get married or enter into a civil partnership.
Now is the time to use as many annual exemptions as you can to reduce the value of your overall estate, and minimise the amount of inheritance tax your family will have to pay when you die.
3. Use your Capital Gains Tax (CGT) exemption allowance
Every adult has an annual CGT exemption allowance of £12,300 per person (so £24,600 a couple). Stocks and Shares ISAs and your main residence are exempt from capital gains tax, but other valuables over £6,000, stocks and shares outside of ISAs, and other properties are all liable for CGT.
You can’t carry over your capital gains tax allowance into the next year either. Once the tax year ends, your CGT allowance for that year is gone forever. It’s an expensive missed opportunity if you don’t use at least some of your CGT allowance each year.
4. Use your Annual Investment Allowance if you’re a sole trader
Self-employed doctors and dentists are classified by the HMRC as ‘sole traders’. Sole traders can make use of an Annual Investment Allowance (AIA) which allows you to make capital purchases and gain tax relief. This can include the purchase of phones and computers that you use to benefit your business.
Exactly what is and isn’t allowed in your AIA can be a bit of a grey area, so you’d be wise to get your skates on and check with your accountant. You never know, there may be an eligible purchase you can include in this year’s allowance.
5. Check your tax code
If you’re a doctor or dentist employed in a single role, your tax code should, in theory, be correct, yet in reality, it isn’t always.
If you are self-employed or have more than one job, making sure you are on the right tax code is much more complicated.
Whatever your employment status is, it’s worth checking your tax code and seeking advice if you want to be sure it’s correct.
6. Use your personal savings allowance
In addition to your ISA allowances, basic and higher rate taxpayers also have a personal savings allowance. It means you can earn a certain amount of interest on any non-ISA savings you have, without having to pay tax:
- For basic rate taxpayers, your personal savings allowance is £1,000 a year.
- For higher rate taxpayers, your personal savings allowance is £500 a year.
Sadly, additional rate taxpayers do not have a personal savings allowance.
7. Save for your children
The Junior ISA allowance for 2020/21 has been increased to a huge £9,000. Even if you can’t stretch to saving that much for them each year, save what you can afford and allow compound growth and time to help your children to pay for university fees or even get on the property ladder!
8. Check if you have any pension allowance issues
If you don’t know what your annual pension allowance or your lifetime pension allowance is, let alone whether or not you’re likely to breach either or both, it’s time to speak to a specialist, such as Legal and Medical so that you can get to grips with your pension. Don’t assume they don’t affect you!
See our recent articles if you are in the dark about these important areas
9. Use your dividend allowance
Currently, a tax-free dividend allowance of £2,000 applies to individuals. Any dividends you earn above this £2,000 limit will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).
You should also note that:
- Dividends received by pensions and ISAs are not included.
- Dividend income is treated as the top band of income.
- If you receive dividends of more than the limit and you are a basic rate taxpayer, you need to complete a self-assessment tax return.
So there you have it – there are lots of things to consider!
We would always recommend you seeking financial advice regarding your specific circumstances plus it’s a lot to manage on your own so don’t hesitate to get in touch!
Have you planned financially for the end of the tax year? Let us know by adding a comment below