Seven last-minute hacks for tax year end

The last day of the current tax year is precisely two weeks away. But if you’re organised, it’s not too late for a spot of last-minute planning to make the most of your tax-free allowances and exemptions.

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So, what are the things you should consider? Here’s a seven-point checklist.

1) Top up your ISA

With both dividend and capital gains tax (CGT) allowances being ravaged in recent years, it’s never been more important for investors to shelter as much of their wealth as possible from tax.

Each year you can invest as much as £20,000 into individual savings accounts (ISAs) tax-free. You won’t need to pay any income or dividend tax on your returns, nor will you pay CGT on any growth.

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If you’ve chosen a stocks and shares ISA to grow your wealth, don’t worry about being rushed into making investment decisions. You can hold the money in cash initially and decide where to invest it once you’ve got time. The important thing is to get the money into your ISA by 5 April to make the most of the current year’s allowance.

2) Don’t forget Junior ISAs

Children get an ISA allowance too and this year they can save up to £9,000 tax free.

Parents, other family members and even friends can all pay into Junior ISAs (JISA) on a child’s behalf.

Cash Junior ISAs are often regarded as a safer bet by some parents – but as children won’t be able to access the money until they turn 18, they are likely to get better returns in a stocks and shares JISA.

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Paying into a JISA is a great way of building a nest egg for the youngest members of your family, but it could be a particularly tax-savvy move for parents and grandparents that have already maxed out their own ISA allowance.

For grandparents, making regular payments into a JISA can also be an excellent way of mitigating an inheritance tax (IHT) liability. This is because regular gifts are free of IHT – you just need to be able to prove that they are made from surplus income and don’t affect your standard of living.

3) Use your capital gains tax allowance

On 6 April, the CGT allowance will drop to £3,000, but there is still time to make the most of the current £6,000 allowance.

The key is to look at the gains you have made so far on any investments you have that aren’t in a tax wrapper such as an ISA or pension, such as shares or funds. If it’s looking like you have a tax liability brewing, there are several ways you can reduce it.

If you still have at least a week to go before 5 April, and you are holding your taxable investments on the same platform as an ISA or SIPP, you might just be able to squeeze in a quick Bed and ISA or Bed and SIPP. This involves selling gains and immediately buying them back within your ISA or pension. So long as you only sell gains up to the CGT allowance, there won’t be any tax to pay and your money will be sheltered from tax going forward too.

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You just need to make sure you have enough of your ISA or pension allowance remaining.

If that option doesn’t work for you, there are other strategies you can consider. For example, if you are married or in a civil partnership, you could consider signing over investments to your spouse – if they have allowance to spare. That way you get make the most of both of your allowances.

Alternatively, you could consider selling gains up to the allowance – you can’t buy back the same investment straightaway, but you could invest in something similar, or use it as an opportunity to increase diversity in your portfolio by reinvesting your gains elsewhere.

4) Make the most of your pension allowance

Each year you can invest 100% of your earnings, up to a maximum of £60,000, into your pension and get tax relief on your contributions. This will be at a rate of 20%, 40% or 45%, depending on whether you pay basic, higher or additional rate tax.

This government top-up makes this an incredibly tax-savvy investment, that more than makes up for the fact that you won’t be able to access your money until you turn 55 (rising to 57 in 2028).

Most workplace pensions allow you to make ad hoc contributions. Alternatively, if that looks a bit too fiddly, you can easily pay money into a personal pension such as an online self-invested personal pension (SIPP).

5) Cut the higher income child benefit charge – or avoid it altogether

If you, or your partner earns more than £50,000 a year and you’re claiming child benefit, the higher earner will have to pay all, or some of it back, through self-assessment. This is called the High-Income Child Benefit Charge, and it effectively means that once earnings reach £60,000 you repay all the child benefit you have received over the last year.

However, as the calculations are based on your income after pension contributions have been made, it is possible to reduce or potentially avoid paying the charge altogether, by increasing your pension contributions.

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Another excellent bit of financial planning – this strategy not only cuts your tax bill, with the added benefit of tax relief on your pension contribution, but also gives your retirement pot a significant boost.

Following an announcement in the Budget, the threshold for paying the higher income child benefit charge will rise to £60,000 and the rate at which the benefit is clawed back is being slowed down too. As a result, only those households where one partner has an income over £80,000, will pay back all their child benefit.

These changes, however, won’t be introduced until April, which means there’s still a good incentive for those earning between £50,000 and £60,000 this year to top up their pension before 6 April.

6) Think about using carry forward rules

If you have already maxed out your pension, you might be able to pay more than your allowance in some cases. Carry forward rules may let you pay in any unused allowance from the last three years. One thing to be aware of is that the 100% of earnings rule still applies.

This can be particularly helpful if your income has gone up substantially this year, you’ve had a windfall, or you are self-employed and have a fluctuating income.

7) Use your IHT gifting allowance

If you are concerned that your loved ones could be landed with a tax bill when you die, it’s also important to make sure you take advantage of the annual IHT gifting allowance.

Each year you can give away up to £3,000 to anyone you like and that money will immediately be outside your estate for IHT purposes. This isn’t quite a use it or lose it allowance – you can also use last year’s allowance if you didn’t take advantage of it.

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This means that a couple that didn’t give away anything last year, could give away as much as £12,000 in one go, before they get a fresh allowance on 6 April.

Gifts in excess of the permitted allowances are known as potentially exempt transfers, or PETs, which means you would need to survive seven years for them to be totally tax free.