There are a few that I don't have room to include in this blog post, but some of the most important ones include:
The Income Tax personal allowance for 2021/22 is £12,570 so any income of this amount is tax-free. Any family members with an income less than this can utilise the allowance with dividends, interest and trust income.
Remember that £1 of the personal allowance is lost for each £2 of income received above £100,000 which creates an effective marginal tax rate of 60 per cent on income between £100,000 and £125,140. Deferring receipt of income after the 5th of April or maximising pension contributions can make a significant difference to the tax you will pay this year.
Capital Gains Tax
The Capital Gains Tax annual exemption allows up to £12,300 to be realised without tax. Consider selling assets where you will make a gain to take advantage of this, though you must remember that if you repurchase something within 30-days of sale, the two transactions cancel each other out.
The maximum annual pension allowance is £40,000 for contributions made in the tax year and unused relief can be carried forward for up to three years. This is subject to an individual's pension fund not exceeding the lifetime allowance of £1,073,100.
This can be tax efficient for anyone with a marginal effective tax rate of 60 per cent so a £10 contribution will only cost £4 of net income.
Giving to charity
Charitable donations will also qualify for tax relief by extending your basic rate tax band. It is a confusing subject, but the net effect is that a £100 donation means the charity received £125 and you can claim back £25 of tax. Be careful of making donations using Gift Aid if you haven't paid sufficient tax as your liability could actually increase.
Each taxpayer has a £3,000 annual gift exemption which can be carried forward for one year. You can make gifts to friends and family of up to £6,000 every other year without paying Inheritance Tax if you do not survive the gift by seven years.
For anyone whose income is greater than their living expenses, you can potentially make larger tax-free gifts, but these should be in the form of a regular pattern of gifting so I will always recommend taking professional advice before doing it.
EIS and SEIS
Certain qualifying investments in growing companies can receive tax relief when they have obtained approval from HMRC. EIS received a tax relief of 30 per cent and SEIS receives 50 per cent on the amount invested. There is also an exemption on Capital Gains Tax on future realisation and a rollover of EIS and or partial exemption on SEIS for future reinvestment.
They do not reduce the amount of income that is taxable, but can certainly reduce the amount of tax that is payable.
Of course, other reliefs are available and I would always recommend taking professional advice before attempting to claim them and reduce your overall tax liability. Essendon Accounts and Tax is always happy to help.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about tax reliefs you can claim, it may be a great idea to give me a call on 01908 774320 and let's see how I can help you.
Don't forget to stay updated with our daily social media posts on Facebook.
Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
No unauthorised use, duplication, distribution or modification to any original content contained within this blog is permitted without prior written permission of the author. All other trademarks and registered names are acknowledged.