With 5 April rapidly approaching social media and inboxes are full of the usual “top ten tax year-end tips” headlines. For those who are organised the planning has long been done, allowances used as fully as possible and it’s time to sit back.
But however organised you are there will always be the odd client who leaves it to the last minute or cannot do it earlier as income is not known until the end of the year.
Alongside mopping up the last of this year’s allowances, it’s more important than ever to get things in place for the 2022/23 tax year.
This time last year we’d just had the first Budget of 2021. With the mass rollout of the vaccine in full swing and progressing well, it was a Budget that was starting to look at how we deal with paying for the pandemic, with the emphasis on a more sustainable economy. With this in mind a number of announcements were made, most notably the freezing of many allowances. The lifetime allowance freeze came into play immediately, but others will bite from 6 April this year unless things change.
The personal allowance, income tax bands (with some variations in Scotland), and the capital gains tax allowance have all been frozen.
This means more and more people will be dragged into higher tax brackets than previously. Personal pension contributions have always been very tax-efficient, but the higher the tax you pay the bigger the gain. Also, let’s not forget the benefit for those with income just over £50,000 with children, for whom contributions may be able to reduce their High Income Child Benefit Tax Charge, or take them out of it completely. And for those with income just over the £100,000 mark who start losing their personal allowance the effective rate of tax relief can be up to 60%.
On top of this we had September’s announcements, relating to National Insurance (NI) increases, the new Health and Social Care Levy (HSCL) and increases to divided tax rates.
The new dividend tax rates bite from 6 April too. So even more reason to get investments into a pension or ISA to protect them.
The increased NI rates start next month as well, to be replaced by the HSCL a year later. The best way to avoid some of this will be through salary sacrifice. For employed clients there is a clear incentive to make contributions in this way – and it will benefit their employer too as the hikes apply to both parties.
The government has faced pressure to reverse the NI rise decision in light of the dramatic rise in energy prices and cost of living in general. It is so far resisting and although a U-turn is still possible – we have the Spring Statement on 23 March to get through – it feels unlikely.
The message is clear, in light of the frozen allowances and rising tax rates, wrap those investments up while you can.
Lisa Webster is senior technical consultant at AJ Bell. She is an economics graduate with over 15 years’ experience in financial services. Prior to joining AJ Bell in May 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. She is part of the AJ Bell Technical Team, responsible for providing regulatory and technical analysis to the business and outside world. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. Twitter: @lisasippster