Just recently, I have discussed how the 2021 Budget has impacted various elements of financial planning. Having spoken about ISAs in our last blog, and how we can assist you in getting the most ‘bang for your buck’ during the 2021-2022 tax year, our next couple of blogs are going to share with you some of the top personal and family, property, and business tax planning tips, covering a wider range of scenarios.

With tax comes certain complexities though, so to aid your tax planning, I am going to highlight just some of the ways you can benefit from certain tax reliefs and avoid some of the associated penalties.  

Please note this is not definitive guidance for your individual financial circumstances. To gain the most appropriate and relevant personal financial advice, our team of expert Independent Financial Advisors are on hand to run through a review of your entire financial portfolio, savings, and investments, and future plans. So, please use these tips purely as an overview for your tax planning and not formal financial advice.

Personal and Family Tax Planning

  1. Check your PAYE tax code – HMRC systems cannot distinguish between any temporary changes to your salary and permanent pay changes. Therefore, your tax code may be altered after receiving an ad-hoc bonus for example, but may then continue using this amended figure, which may also include an estimated income, based on previous years. Monitor your tax code through your personal tax account to ensure you are not overpaying and correct any other errors.
  2. Reclaim any overpaid National Insurance Contributions (NICs) – if you have more than one job, you might find you have overpaid NICs during any one tax year, which you can claim back from HMRC within that tax year. You can prevent it from happening at all by deferring NICs from one of your jobs. Complete and send form CA72A to HMRC by 14th February within that tax year (preferably before, or by 31st January if self-employed).   

  3. Make the most of any unused personal tax allowance - 10% of any unused personal allowance can be shared between married couples and civil partners. You can transfer £1,260 for 2021/2022 (only permitted if the recipient partner pays the basic tax rate of 20%). N.B. You can backdate a claim for up to four years, so a claim made by April 5th, 2022 can include 2017/2018.

  4. Child Benefit – if you or your partner receive Child Benefit, and your income is greater than £60,000, you must pay extra tax to claw back the Child Benefit received. The tax charge applies to the higher earner in the family (no matter who receives the benefit). If you or your partner earn between £50,000 to £60,000 you may have to pay back some (if not, all) of the Child Benefit you have been paid. For 2021-2022, the basic rate threshold is now £50,270, so it will apply to some basic rate taxpayers.

    Our top tip is to estimate your 2021-2022 income, and if it is likely to be less than £60,000, you can restart your Child Benefit payments.

    Ask one of our expert financial planners for further tax planning guidance, to make sure you are not one of those who loses out, nor one of those who gets caught out by any penalties this time!

  1. Make pension contributions or charitable gifts to retain your Child Benefit – based on the above income cap, you can make pension contributions or charitable donations under Gift Aid to reduce your annual adjusted net income. So, if your income is greater than £50,270 (you would pay higher rate tax on the excess), additional contributions mean your income will fall within the basic tax rate band and retain your savings allowance at £1,000 rather than £500.

Retirement Planning

  1. Maximise tax relief on your pension contributions by using all your annual allowance – you can use any surplus allowance from three previous years in addition to your 2021-2022 annual allowance of £40,000. N.B. Your personal pension contributions plus those made by your employer must be covered by your available allowance, to avoid tax charges.

    Rules apply around maximum net income and income plus pension contributions, so we strongly recommend contacting our tax planning and pension planning experts before considering any significant investment.

Property – Residential, Holiday Lets and Estate Planning

  1. Advise HMRC which is your main home if you buy a second (or more) property – the home which has always been your main residence is free of Capital Gains Tax (CGT) on sale or disposal. For any other property in which you have lived for some of the time will attract CGT exemption for that period (if you have elected it to be your main home). If a property has been your nominated main home at any time, the gain for the last nine months of ownership is free of tax.

  2. Nominate one property as your main home within two years of your marriage or civil partnership (where both you and your partner own homes) – for tax purposes, once married, you can only have one main home between you. If you continue to occupy both properties for some periods, nominate the property which is likely to optimise your CGT main residence exemption. Stay ahead of your tax planning by notifying this yourself, HMRC will designate the main residence based on the home you occupy for most of the time.

  3. Let rooms in your own home to one or more lodgers – Rent-a-room relief allows you to earn up to £7,500 per property tax-free, from letting rooms for living purposes in your own home. No expenses can be claimed. If the gross rent is greater than £7,500, check whether paying tax on the income after allowable deductible expenses is more tax efficient.

  4. Let out your drive or garage – letting out space in your garage, on your drive, or for commuter parking falls outside of the Rent-a-room relief, so allows you to receive up to £1,000 tax-free income. If the gross income before deducting expenses is no greater than £1,000, you do not have to report it in your tax return. If it is greater than £1,000 you can opt in to deducting expenses and paying tax on the net amount.

  5. Income from your let residential property – you should be using the cash basis to calculate the profit/loss if the annual turnover is no more than £150,000. Income is only recognised as such when you receive the rent. Expenses are only recognised when you pay them. Using the cash basis means any lost income (through non-payment) is reflected in your accounts straight away. This could have a noticeable impact within your tax planning and self-assessment.

  6. Record accurately how many days your holiday accommodation is let for – thresholds are in place within each tax year to permit tax reliefs for let furnished holiday properties. Each property must be available for let for a minimum of 210 days and let for at least 105 days. Where you let several holiday properties, you can average the number of days of actual letting across all your UK properties. Circumstances such as the COVID pandemic are considered in case you do not meet the minimum period of occupancy. You may also be able to register a holiday rental second home as a business (and qualify for small business rates relief).

    We can assist with such guidance here, to ensure your tax planning is as efficient as it can possibly be.

  1. Avoid penalties for late reporting and payment of any CGT due on sale of your property – you must report and pay within 30 calendar days of the completion date, any CGT due to HMRC if you sell or give away a UK residential property. The amount of CGT paid must be your best estimate (taken from any earlier residential property disposals during the same tax year). Your final total gains must be declared on your self-assessment tax return after the end of the tax year.

  2. Inheritance Tax Planning – will your direct descendants inherit your home? Then you may be able to benefit from an extension of £175,000 to your IHT nil-rate band (currently the first £325,000 of your estate).

    A simple call to our Estate Planning Advisors will give you all the guidance you need to ensure your will is clear, and any necessary changes incorporate all such benefits, including widows’ and widowers’ inheritance of unused proportions of their spouse’s nil-rate band, regardless of when they died.

    If you are not legally married or in a civil partnership, your surviving partner must pay IHT on any inheritance over £325,000. However, legalising your marriage or civil partnership means any inheritance is tax-free. They can also inherit your unused nil-rate band residence nil-rate band (currently worth up to £500,000), which also saves further IHT due on their own death.

    Where at least 10% of your net estate is donated to charities, 36% IHT applies (not 40%).

    IHT-free gifts up to the value of £3,000 per year can be made from your regular annual income to reduce the overall and final value of your estate. You do not have to gift to the same people each year, and if you do not meet the £3,000 in one tax year, you can carry that allowance forward to the following tax year i.e., £6,000 in the following tax year.  

    You and your spouse can also give your children £5,000 each (£2,500 for grandchildren), IHT-free, in consideration of their marriage or civil partnership. This can be combined with the above £3,000 gift.

  1. Making a Will – as one of our previous blogs explained, if you die without making a will, the rules of intestacy apply – you have no say in how your estate is divided. Any of your estate not left to your spouse or civil partner, exceeding £325,000, will be subject to 40% IHT. If you have no surviving relatives, your whole estate is allocated to the government.

Let Simpson Financial Services take care of your tax planning for optimum efficiency and financial security

As you will see, this subject can be complex and extremely daunting if you are making decisions which you have not faced before. So, our next blog is sharing more tax planning tips based on business and how to make the most of your allowances, including tips on Capital Gains Tax and VAT.   

With this in mind, we guarantee Simpson Financial Services is just the business you need to be working alongside to ensure you not only gain the most out of your savings and investments, and overall financial planning, but also to make sure you are not facing any penalties you would otherwise not be aware of.

Tax planning should always form part of your financial portfolio, so it is vital to seek professional financial advice before making any investments or changes to your legal documentation. Our team of Independent Financial Advisors are happy to provide more information, so call us today to get your financial planning underway.