Tax planning ideas for the end of the financial year
Wednesday 16 March, 2022
Tracy Dove, Mortgage Broker in Basildon, Essex reviews ways to make the most of your money in the run up to the end of the tax year, and how you can give your children or grandchildren a financial head start.
Make the most of your tax allowances for the 2021/22 tax year
It is important that you make the most of your tax allowances as we approach the end of the current tax year on 5th April 2022, and a financial gift could be something you want to consider. A financial present is a great way to help your child or grandchild with their financial futures.
If you are looking to gift money before the new tax year or want help understanding what your tax allowances are please call our Thomas Oliver financial planning team on 01707 872000.
Remember everyone over 18 years old can invest £20,000 in a stocks and shares ISA or a cash ISA or a combination of both. That is £40,000 for a couple.
However, did you know that you can also invest money for your children, Junior ISAs (JISAs) are a great way of doing this. These accounts are available to anyone under 18. Like the adult accounts everything earned in a JISA is tax-free. This means there won’t be any tax on the interest, and you won’t be liable for any tax on capital gains or dividends if you choose to invest.
When you put money in a JISA it is locked away until the child reaches 18, when it becomes their own ISA. A JISA can be opened by parents with children aged under 16 or by children themselves who are 16 and 17. In the current 2021/22 tax year you can save or invest up to £9000 in a JISA. You can save for your child in a cash ISA, a stocks and shares ISA or a combination of the two.
Contributions into a child’s pension fund are a great way to build a nest egg for your children or grandchildren. Before your children enter the workforce, putting aside some money for them now could really help them out later on. Children’s pensions are similar to adult pensions in many ways (like investing in shares and attracting tax relief from the government). They are managed on behalf of the child by the parent or legal guardian until the child turns 18 years old.
A child’s pension can be set up by a parent or guardian, but anyone can contribute. You can pay up to £2880 in the 202/22 tax year into a pension on behalf of the child and the government automatically tops it up with 20% tax relief on the total amount contributed, taking the amount up to £3600. When the child reaches 18, the control of the pension passes to them, but the funds must remain in the pension until the holder reaches 55.
Make a cash gift
Making a cash gift can be a great way to help a loved one (and help with your estate planning). Everyone has an annual gifting limit of £3000 that is exempt from the inheritance tax (IHT) this is known as your annual exemption. If you fail to use it one year, you can carry it over to the next year (so if you didn’t use the gift last year you could give away £6000).
You can also give smaller gifts worth up to £250 to as many people as you like. Most gifts made seven years before your death are also tax free. While you can give away as much as you like, if the gift is worth more than £3000 you may have to pay IHT.
Another way you can support your children or grandchildren is by offering to pay for their wedding. Gifts for a wedding or civil partnership are exempt from IHT and are separate from the annual £3000 gift allowance.
Parent can give up to £5000 to a child for their wedding tax-free. Grandparents or great grandparents can give up to £2500 while other relatives and friends can give up to £1000. But remember if the gift is to be effective for IHT purposes, it must be made before, not after, the wedding, and the wedding has to happen.
Think about capital gains tax
It’s worth remembering any gift you give even to family members could be subject to capital gains tax (CGT). CGT is the tax you pay on any profit or gain you make when you dispose of an asset, such as a second home or shares.
So in theory, if you gift an asset and it has risen in value compared to what you’ve paid for it, you could be liable to CGT. For the 2021/2022 tax year the CGT allowance is £12,300. This is the amount of profit you can make before CGT is applied.
Tracy Dove, Mortgage Broker in Basildon, Essex said: ‘Estate and tax planning can be complex so if you decide to gift a valuable asset make sure you speak to your financial adviser first to ensure you don’t make any mistakes. Remember that everyone’s personal and financial situation is different and before we provide financial advice, we will always review your financial situation. We recommend that you call our qualified financial advisers now to arrange a meeting before the new tax year. Don’t wait until after 5th April 2022 as you will lose all your tax allowances. Our financial advisers offer financial advice to anyone living in the southeast of England. Most of our clients are in Hertfordshire, Essex or Central London and North London. Call us now so we can put a financial plan in place to ensure you don’t miss out on any of your tax allowances for the 2021/22 tax year.’