As the end of the 2021/22 tax year is approaching, there are a number of different things that you could consider.
These need to be actioned before 6 April 2022:-
Where the lowest earning spouse earns less than the personal allowance (£12,570 for 2021/22) and the highest earning spouse does not earn more than the basic rate band (£37,700) you can claim marriage allowance. This allows the lowest earning spouse to transfer £1,250 of their personal allowance to the highest earning spouse which can result in a reduction of the income tax bill of up to £250 in the tax year.
A claim for marriage allowance can be backdated to any tax year from 5 April 2018 provided the conditions have been met for each tax year.
Making Pension Contributions
By making personal pension contributions this can reduce your taxable income to keep you below the current £50,000 for both higher rate tax and child benefit and retain your personal allowance if your total income exceeds £100,000.
There is a limit to the amount of personal pension contributions that you can make and this depends on your total earned income for the tax year and the pension annual allowance. If the pension contributions you make exceed the total available allowance for the tax year, an annual allowance tax charge will apply on the excess contributions at your marginal rate of tax.
The annual individual limit for pension contributions (the total of both employer and employee contributions) is £40,000 for the current (2021/22) tax year. Basic rate tax relief of 20% is given automatically on personal pension contributions. Additional relief is available if you are a higher or additional rate tax payer and this should be claimed by taxpayers on their Self Assessment Tax Return.
The Annual allowance is restricted for individuals earning in excess of £240,000 for 2021/22.
It is possible to make contributions in excess of the annual £40,000 pension allowance, by using unused allowances from the previous three tax years, providing you were a member of a pension scheme. By using these rules it is possible to contribute up to £160,000 to your pension scheme and obtain tax relief on this amount.
If you don’t have earnings of £40,000, the maximum contribution will be limited to your actual net relevant earnings. If you have no earnings, contributions of up to £2,880 net can still be made, receiving basic rate tax relief at 20% making a total annual contribution of £3,600.
Making Charitable Donations Subject to Gift Aid
It is worth noting that the amount you donate to a charity is grossed up by 20%. If you are a higher rate tax payer, you get an additional benefit as more of your taxable income is taxed at the basic rate instead of the higher rate. (This is because your basic rate band is extended by your gross payment).
Each individual has an available £2,000 dividend allowance in the 2021/22 tax year where they can receive income from dividends which is taxed at 0%. Any dividend income received in excess of £2,000 will be taxed at the appropriate rates – 7.5% for dividends taxed in the basic rate band, 32.5% for dividends taxed in the higher rate band and 38.1% for dividends falling in the additional rate band.
However, it is worth noting that these rates are increasing in 2022/23 to 8.75%, 33.75% and 39.35% so you may wish to pay more in 2021/22.
If you are a shareholder in an unquoted Limited company and have available reserves in order to pay a dividend, this is worth doing to use up your dividend allowance.
If you have made any gains in 2021/22 it is worth noting that there is an annual exemption of £12,300 of which will be deductible from any gain made in the year.
If you would like any more information in respect of these matters please contact Lucy Orrow at email@example.com or on 01376 326266.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.