Getting ready for tax year end - simple tax planning ideas

As this tax year draws to a close and we look towards a new one opening, it is time to take stock and ensure that we have utilised all the exemption and allowances permitted giving the most tax efficient advice for our clients while still helping clients achieve their investment aims.

ISA allowances

Individuals can invest up to £20,000 each tax year in an Individual Savings Account (ISA). These savings accounts are one of the most tax-efficient vehicles around as the fund grows free of income and capital gains tax. Also, there is no tax to pay on income that is produced by the underlying invested assets, or any lump sums withdrawn.
Where withdrawals have been taken this tax year, an investor has until the end of the current tax year to replace these funds without affecting their annual allowance, so this should be utilised where appropriate.
Clients may also want to consider investing in a Junior ISA or Child Trust Fund, since the annual allowance is £9,000 and, like the adult ISA allowance, if it is not fully used during the tax year, it is lost.

Pension allowances

Pensions are free from income, capital gains, and in most cases inheritance tax, making them one of the most tax efficient vehicles available. Since pensions freedoms were introduced in 2015, they are pivotal for planning a tax-effective retirement strategy.
The annual allowance of £40,000, (plus any carry forward), along with the lifetime allowance (£1,073,100 tax year 20/21), should be a consideration when looking at pension funding. Your client’s salary and whether they will be subject to the tapered annual allowance, is also key. And if they have flexibly accessed income, this may restrict how much they can contribute.
Tax relief (or deducted at source if in an auto enrolment scheme) is a key benefit for pension schemes. If clients are higher or additional-rate taxpayers, additional tax relief on their contributions can be sought via their self- assessment.

Utilising other tax allowances

Here are some reminders of how to maximise other tax allowances:

  • Income tax

    • Clients can gift income producing assets to a lower tax paying spouse/registered civil partner, to increase the joint household income.
    • Regain some or all of the personal allowance (lost on income over £100,000 on a £2 for £1 basis) or child benefit (lost when individual’s income is above £50,000) by contributing to a pension (depending on salary and any carry forward) or applying gift aid to extend the basic-rate band. This is key if the client’s income is pushing into the higher-rate tax band.
    • If the client is a non-taxpayer or they can assign to one, use starting rate for savings income (0% for the first £5,000), and the personal savings allowance (£1,000 for basic rate, £500 for higher-rate taxpayers) to take gains from offshore bonds. Chargeable event calculations will need to be completed to see what is suitable for each individual client.
    • Take natural income from ISAs as this is tax free. An ISA should be utilised in a client’s financial plan because of their tax efficiency.
    • Assets held in unwrapped portfolios will be subject to income tax even if the income is reinvested or is in accumulation units or shares. The dividend allowance of £2,000 can negate some of this, but it would be worth looking at unwrapped portfolios to see if a more appropriate home for this money could be found, such as in ISAs, pensions or investment bonds, subject to the maximum amount permitted and rules surrounding pension contributions. It should also be noted that the dividend allowance is not available to trustees.

  • Capital gains tax (CGT)

    • Passing assets between spouses and registered civil partners is not a CGT chargeable disposal. This could help in using both partner’s CGT exemption of £12,300. Additionally, depending on their rates of income tax, moving assets between partners could potentially push up the joint income if one is a lower-rate taxpayer.
    • Using CGT exemptions regularly can push up the average price of that asset, meaning more could be taken out in future years without paying tax. An investment manager can help you ensure your client’s accounts are fully managed from a CGT perspective.
    • A report from the Office of Tax Simplification on CGT was published towards the end of 2020. The report recommended changes to the CGT exemptions and aligning CGT rates to income tax rates. While we don’t know what will happen, consideration should be given to making use of allowances and tax rates at their current level.
    • Clients with losses on their investments must register these with HMRC within four years, which can then be carried forward indefinitely for future use.
    • Certain clients may also be able to take advantage of entrepreneurs’ relief, subject to certain conditions being met. This is another area that the Office of Tax Simplification has been looking at for potential reform. Professional tax advice should be sought for clarification on this matter.

  • Inheritance tax (IHT)

    • The annual exempt gift(s) should be made (£3,000 per donor) before the end of the tax year. This could be as much as £12,000 for a couple if they have not used the previous year’s allowance. Other exempt gifts could also help reduce the estate’s liability to IHT and these should be explored with clients to see if more IHT savings can be made.
    • Utilising trusts with life assurance and whole of life policies is a simple way to help reduce IHT. Gifting investment bonds into trusts could also help reduce potential IHT liability. The type of trust chosen will need to be suitable for the client, and discussion around access to capital and income will be vital as most trusts are irrevocable.


In summary

While there are many planning opportunities with different clients, ensuring the basics are in place is key to a successful financial planning strategy. While there will always be reports in the news about potential upcoming changes and how this might affect our financial plans, we need to ensure we use the allowances, exemptions, contributions limits and the different tax wrappers available to us now, as some will be lost when a new tax year rolls around and some may be lost with legislation changes. We can’t predict the future, but we can work with what we know now to help clients achieve their financial goals. 
At Sanlam we have a range of different investment products and services which can help your clients achieve their financial goals. For more information, speak to your Account Director.
For Financial Advisers only. Not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at January 2021 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

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