10 tips for your 2021 tax planning

With the end of the tax year just a few weeks away, below are our top 10 tips you can benefit from this year.

1. Each person has an annual exemption of £12,300 to set against their capital gains. This allowance cannot be carried forward or transferred to another person. So if you are thinking of selling or gifting assets and have a spouse/civil partner, take advice to see if it is worthwhile transferring the asset to your spouse/civil partner before making any disposals, so as to utilise their annual exemption in addition to your own, this could save you up to £4,920!
2. Use up your £3,000 inheritance gift exemption for the current year, and also use the same exemption from the previous year (2019/20), if you have not already done so. The exempt amount may be carried forward one tax year only, after which it is lost.
3. Review your pension contributions (including those made via salary sacrifice and those made by your employer) to ensure that you can make full use of the annual pensions allowance. Remember that if you were registered in a UK pension scheme in the three years prior to 2020/21, you have the opportunity to use up any unused annual allowance. The carry forward is a ‘use it or lose it’ relief and this year is the last year in which you can use up the unused Annual Allowance from 2017/18.
4. For non-earners and for children, it is possible to make net pension contributions of up to £2,880 in the year. The government will add £720 to this level of contribution, so the value of the pension fund increases to £3,600 gross.
5. Contribute to your ISA. The ISA allowance for 2020/21 is £20,000, for Junior ISAs is £9,000 and Lifetime ISAs it’s £4000 plus a 25% bonus. Remember that income or disposals within the ISA wrapper will be tax-free.
6. Make charitable donations via Gift Aid. If you are a higher rate or additional rate taxpayer, then you will gain relief on your donations.
7. If you made capital losses in 2016/17, which you did not notify HMRC about, or you overpaid tax in that year, you have until 5 April 2021 to submit a claim to HMRC to notify them of the loss or reclaim the tax overpayment, after which the claim will be out of time.
8. For enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) or venture capital trust (VCT) investments, consider making these sooner rather than later in order to generate an earlier tax repayment or to carry back the relief to the previous tax year. Remember that such investments carry risks and you could end up losing your investment, so you should seek advice before investing.
9. Use your marriage tax allowance, if you are married or in a civil partnership and one of you is a non-taxpayer (earning below £12,500) and the other a basic rate (earning below £50,000) the non-tax payer can transfer 10% of their remaining personal allowance to the basic rate tax payer to use, this could save £250 of tax and you can claim for the previous four years to 2016/17, if you qualified.
10. Finally, it is worth considering preparing your tax return earlier in the tax year so that should your tax liability have fallen from that in the previous year, the second payment on account becoming due by 31 July 2021 may be reduced (should you indeed fall within the payment on account regime). If, on the other hand, your tax liability has increased, an early understanding of this will allow you to budget for the additional tax to be paid by 31 January 2022.