This year has seen two budgets and high-profile tax announcements that have included the introduction of a Health and Social Care Levy and the suspension of the State Pension triple lock.

As the government looks to recoup its coronavirus borrowing, household income looks likely to be reduced for many in 2022.

With some allowances and thresholds already frozen, it’s more important than ever that you make the most of the rules as they exist now. With changes due to come into force from April, it’s never too early to start preparing for the new tax year.

Savings and investments products like pensions and ISAs are tax-efficient, but only if you make the most of them.

Keep reading for your look at some of the main changes to occur this year, and what you can do now to mitigate their impact in the run-up to tax year end.

A year of tax changes

Back in March, it was announced that the Personal Allowance – the amount you can earn without becoming liable for Income Tax – was to be frozen at £12,570 until at least 2026.

In the same budget, the chancellor also froze the pension Lifetime Allowance (£1,073,100), the Capital Gains Tax allowance (£12,300) and the Inheritance Tax nil-rate band (£325,000) and residence nil-rate band (£175,000).

In September, the prime minister introduced the Health and Social Care Levy, a 1.25 percentage point rise to National Insurance payable by employers, employees, and – for the first time – workers over State Pension Age.

On the same day, the government announced that the State Pension triple lock would also be suspended for one year.

All of these changes could impact your long-term plans and the amount you can save for your future.

4 things you should do before tax year end

1. Make the most of your ISA and JISA Allowances

You can pay up to £20,000 into the ISAs you hold this tax year and up to £9,000 into a JISA you pay into on behalf of a child.

ISAs are tax-efficient, making them a great way to build a fund to supplement pension income in retirement. There is no tax to pay on the interest you earn on a Cash ISA or JISA and the gains you make on a Stocks and Shares ISA or JISA are free of both Income Tax and Capital Gains Tax (CGT).

Remember, too, that the ISA Allowance can’t be carried over, so if you don’t make full use of it during a given tax year, you lose it.

The chancellor announced in his Autumn Budget that both the ISA and JISA limits would remain untouched for the 2022/23 tax year.

2. Make the most of VCTs and EISs

Venture Capital Trusts (VCTs) are high-risk investments offering attractive tax breaks.

If you are already invested in VCTs or considering it before the end of the tax year, remember the maximum that you can invest in a tax year is £200,000. You receive Income Tax relief at 30% and Capital Gains Tax relief but must hold the funds for five years.

Enterprise Investment Schemes (EISs) offer similar high-risk opportunities for returns. You can invest £1 million per tax year or £2 million, as long as anything above £1 million is in “knowledge-intensive” investments.

It is important to note that both VCTs and EISs are only suitable for a limited number of investors. Be sure to speak to us if you are considering investing.

3. Top-up your pension – and your child’s pension

The Annual Allowance is the amount you can contribute to your pension and still receive tax relief.

Basic-rate tax relief (20%) means that increasing your pension pot by £100 will only cost you £80, with the rest topped up by the government. Higher- and additional-rate taxpayers can claim the additional relief (an extra 20% and 25%, respectively) through their self-assessment tax return.

For the 2021/22 tax year, the Annual Allowance is £40,000 or 100% of your earnings, whichever is lower. If you haven’t made full use of your allowance this year, and you can afford to top-up your pension, now is a great time to do so.

And don’t forget your child’s pension. For those not earning, the maximum contribution in a tax year is currently £3,600. This will cost you just £2,880, with tax relief accounting for the remaining £720.

Starting a pension for a child gives them a great head start towards financial security in later life, so why not act now?

4. Consider your Dividend Allowance

Business owners will be aware that the rate of Dividend Tax is set to change from the next tax year. If you currently pay yourself a low salary, supplemented by dividend payments, you might be reconsidering your strategy for 2022.

While the rate of tax is set to increase by 1.25%, the Dividend Allowance isn’t changing so be sure to pay yourself at least the £2,000 allowance. Get in touch if you’d like to discuss how you will take dividends in 2022/23 and, in the meantime, be sure to make the most of the rules as they exist now.

Why now is a good time to start preparing for tax year end

Changing allowances and reliefs mean that now is a great time to start thinking about tax year end.

Whether you are topping up pensions and ISAs or revisiting your dividend strategy, by starting early you not only have several months over which to spread payments, you can also avoid the last-minute rush that can lead to mistakes – like oversubscribing to an ISA, for example.

If you would like help with any aspect of your tax year end preparations or understanding any of the new taxes and thresholds due to come into force next year, we can help.

Get in touch

If you would like to discuss any element of your financial plans in the approach to tax year end, please email enquiries@futureplanningwm.co.uk or call 01793 575553.

Please note

VCTs are classed as high-risk investments only suitable for a small number of high net worth investors. VCTs are long term investments and should be held for a minimum of five years. They may be difficult to sell.

The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. You could lose your investment. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.