Use it or lose it! In reality, the tax year end is 31st March NOT 5th April.
The thing about the taxman is his generosity knows many boundaries and 5th April is the absolute deadline for using the allowances and incentives. This year the tax year end arrives on SUNDAY 5th April so in reality if you haven’t sorted your tax year end planning by Tuesday 31st March you are very likely to run out of time.
Here are the top 5 things to consider:
Most of us can have a certain amount of income each year tax-free within our Personal Allowance (currently £12,500). Have you used yours? Have you equalised income between you and partner so you both use your allowance?
In the same way as everybody can have some tax-free income, they are also allowed some tax-free capital growth each year. This allowance is called Capital Gains Tax (CGT) allowance (currently £12,000). Lots of people fail to use this allowance and yet you can save significant amounts of tax by organising things, so the gains are recognised as capital rather than income. It is also worth crystallising gains even if you don’t need to cash in an investment just so you can buy something similar and rebase the purchase price. If you don’t systematically crystallise gains, they roll up in the investment and will become subject to tax at a later date. Once an investment is pregnant with gain it becomes an obstacle to accessing the capital or even managing the investment – you may end up knowing something is not doing well but the tax consequence of trading it in means you get stuck with a dud.
There is a dividend allowance as well which lets us receive some tax-free dividend each year (currently £2,000).
We can have some tax-free interest on our savings each year unless we are really high earners (currently from £1,000).
ISAs are a great tax wrapper but don’t waste the wrapper on cash. Anything in an ISA is exempt from income and capital taxes. Cash only produces income. Stocks and Shares produce income in the form of dividend and interest, and they have the potential to grow in capital terms. Given that over the long term you would also expect your stocks and shares-based investments to deliver greater returns than cash, you benefit from greater amounts of tax relief from wrapping these assets rather than cash.
I know tax is complicated but believe me when I tell you that we generally save clients tens of thousands of pounds in unnecessary tax over their financial planning lifecycle. The other way to look at that is you will be robbed if you don’t plan!