Tax Year End: financial tasks to complete before 5 April

At the start of the pandemic, practical necessity and looking after our loved ones became more urgent priorities than financial planning or thinking about our investments.

But as we ease out of lockdown and the vaccine rollout continues, we can and should turn our attention to the important longer-term matters - and the next few days until the end of the tax year on 5 April provide a last-minute opportunity for financial housekeeping.

With this in mind, here's four tasks you should be considering in the run-up to the end of the tax year.

Make the most of your ISA allowance

ISAs can be a great way of making your money work harder for you, as any money you put in to them is free of any further liability to Income Tax or Capital Gains Tax – so no tax on your interest, no tax on withdrawals and no tax on the profits. You can put up to £20,000 per person into an ISA this tax year (ending 5 April).

They’re also a great way to start investing in stocks and shares – because, as well as giving you all these tax benefits, they’re very simple.

One of the few downsides is you can’t carry forwards any ISA allowance you don’t use in a single tax year – so use it or lose it before 5 April.

Pay what you can into your pension

Generally speaking, a pension is a tax-efficient way of saving for your retirement and due to greater choice and flexibility, it’s a more attractive option for retirement savers than ever before.

It's worth thinking about topping up your pension as much as you can before the end of this tax year (5 April) and making use of any unused allowances from previous tax years, as it’s possible the government might change the tax allowances available to you – so use them whilst you can.

Use your gifting allowances to avoid unnecessary IHT

Unfortunately, too many families are still getting a tax shock when their parents or grandparents die, as the government received a whopping £5.2 billion in Inheritance Tax in the last tax year (HMRC, 2020). Although the tax-free threshold of £325,000 per person may seem generous, the 40% rate at which Inheritance Tax (IHT) is paid on the rest of your estate (subject to other available allowances) is not.

One of the easiest, and potentially rewarding, ways to reduce a future Inheritance Tax (IHT) bill, is to give some of your wealth away during your lifetime and use your gifting allowance before 5 April. Both you and your partner or spouse can each pay your children or grandchildren up to £3,000 a year and it will be deducted from your total estate if you die.

Don’t fall into the CGT trap

Capital Gains Tax (or CGT) is one of the most complex taxes to understand, so it’s no wonder that people fall into the trap of paying unnecessarily or end up being fined for not paying when they should. This is also made worse by the myth that only the very wealthy are likely to have to pay it.

You’re liable for CGT when you sell an asset at a profit. This could be anything from a second home to stocks and shares – or even valuable items such as jewellery or antiques, which is where people often fall foul of the tax. There’s a tax-free allowance of £12,300 for this year, then after that the rate is dependent on the level of income tax you pay – 10% for basic-rate taxpayers and 20% for higher-rate payers (and 18% and 28% respectively if you’re selling a property).

It’s possible the government will increase CGT in the future, to be more closely aligned with income tax rates – so it’s worth making the most of this year’s allowances and current rates if you can.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.