It is time to start thinking about 5 April and your year-end tax planning. After two Budgets in 2021, there should be no spring Budget this year. However, the Chancellor is expected to make a statement to parliament on 23 March alongside the publication of the latest economic forecasts from the Office for Budget Responsibility.
Arguably, tax planning for the 2021/22 yearend matters more than in previous years because in 2022/23:
-The personal allowance and income tax bands (other than in Scotland) will be frozen, despite inflation expected by the Bank of England to be running at 6% by April 2022.
-The increases to National Insurance contributions (NICs) and dividend tax announced last September take effect.
The to-review list
Tax year end checklists change subtly each year, as tax rules change. For 2021/22 the main items are:
Pensions
5 April 2022 is the final date for taking advantage of any unused pension annual allowance (of up to £40,000) from 2018/19. The calculations involved can be complex, so it important to start this element of planning early. There is the potential to go back up to three previous years of underpaid contributions, but you do need advice. ISAs With widespread income tax freezes and an increase of 1.25 percentage points in the tax rates on dividends, the value of the tax shelter provided by ISAs has grown. That probably explains why the Chancellor left the maximum contribution for 2022/23 at £20,000, the same level that has applied since 2017/18. All types of ISA offer four valuable tax benefits:
-Interest earned on cash or fixed interest securities is free of UK income tax.
-Dividends are also free of UK income tax.
-Capital gains are free of UK capital gains tax (CGT). ISA income and gains do not have to be reported on your tax return.
As well as considering fresh ISA investment, you should review your existing ISAs.
