Tax Planning 2021-22

Posted on 01/03/2022 by Zoe Barker

As the tax year comes to an end, here’s a checklist of allowances to consider before the 5th April deadline in order to fully take advantage of tax reliefs.

 

  • Individual ISA threshold for maximum tax wrapper for 2021-2022 is £20,000 and if you’re a couple as much as £40,000 could be invested tax efficiently.

 

  • Additionally, if you wish, you can also invest £9,000 per child or grandchild into Junior ISAs. It’s a great way to pass money to the next generation, tax efficiently.

 

  • If you’re thinking of increasing your pension contributions, the pension contribution is currently 100% of your income with a cap of £40,000 annual allowance, beyond which you won't receive tax relief on any amount over the contribution limit. You can also carry forward unused allowances from the last three tax years. It’s worth checking whether you used your full yearly allowances, from 2018/19 to date. To check your state pension forecast, you can use this calculator.

 

  • If you’re approaching retirement and thinking of making a large pension withdrawal, consider spreading the withdrawal over two or more tax years. This will minimise your Income Tax liability. 

 

  • Take advantage of your annual Capital Gains Tax (CGT) exemption. This has been frozen at £12,300 until 2026. 

 

  • For high earners, you may be able to reduce your taxable income by increasing your pensions contribution or making charitable donations. These can:
    • Bring your income below the additional rate tax band, which starts at £150,000.
    • Help retain your Personal Allowance, which is slowly withdrawn once you earn over £100,000.
    • Help to retain your Child Benefit, which is gradually withdrawn if one parent in the household earns more than £50,000.

 

  • Don’t forget to consider the tax year-end opportunity to gift up to £3,000. This will mean that it isn’t included in the value of your estate, and so won’t be liable for Inheritance Tax.

 

  • Remember if you are a business owner, the first £2,000 of dividend income is tax-free, so consider taking dividend income instead of salary, as you may also be able to minimise National Insurance Contributions (NICs). See below for a table showing tax increases in 2022-2023. If you need help understanding your personal tax, please contact us.

 

  • If you can divert your company’s pre-tax profits into a personal pension, you can potentially reduce your Corporation Tax, Income Tax (including on dividends) and NICs.

 

2021/2022 and 2022/23 Dividend Tax Rates and Thresholds

 

 

Thresholds 2021/22

Thresholds 2022/23

Dividend Tax Rate 2021/22

Dividend Tax Rate 2022/23

Personal Allowance: Tax Free Pay

£0 - £12,500

£0 – £12,570

0%

0%

Basic-rate

£12,571 – £50,270

£12,571 – £50,270

7.5% on dividends earned above dividend allowance.

8.75% on dividends earned above dividend allowance.

Higher-rate

£50,271 – £150,000

£50,271 – £150,000

32.5%

33.75%

Additional-rate 

£150,001+

£150,001+

38.1%

39.35%

 

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