Checklist for the end of the tax year

Checklist for the end of the tax year

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Image by J Kelly Brito on Unsplash

Now that we know the extent to which the budget changed (or did not change) personal taxation, we can turn our focus to the end of the tax year in a few weeks.  However, year end planning is not just about the current year also getting ourselves shaped for the next tax year.  As always, tax planning is a (legal) way of limiting the extent to which the Treasury can deplete your coffers and could be seen as part of an overall planning strategy.  While it is possible to plan on the basis of tax being the dominant factor, it is always worth remembering that the most tax-efficient investment is one which only ever makes losses.  This is not necessarily something which would be regarded as ideal.

Income tax

Make use of your personal allowances

The personal allowance is £12,500 and income received up to this figure is tax-free.  However, the personal allowance is gradually withdrawn where income exceeds £100,000 and is lost completely where income exceeds £125,000.  Taking steps to reduce income, such as by making pension contributions or charitable donations or by transferring assets between spouses/civil partners can mitigate this.

Capital gains tax

UK resident individuals have an annual exempt amount of realised gains of £12,300 on which no tax is charged.  If you have not already done so, consider whether to realise gains up to this amount as you cannot carry forward any unused annual exemption to future years.

In order for the transaction to be effective for tax purposes, the individual cannot buy back the same holding (i.e. same asset and same share class) within 30 days of the sale.

If the gains are concentrated in the hands of one person, transferring some assets to their spouse/civil partner before selling does not incur any tax and allows each individual to use their own exemption.

The exemption for trusts is a maximum of half of the individual exemption (so £6,150 in 2020/21) rate and may be as low as £1,200 if the settlor has created five or more trusts.  These would include trusts holding life assurance policies, for example.

Savings & investments

Even with interest rates at historically low levels, it is worthwhile making use of the personal savings allowance (£500 for higher rate taxpayers and £1,000 otherwise).  Although reduced from its original level, the personal dividend allowance of £2000 per individual is also useful for anyone owning equity-type investments.  This would include those who own their own limited company, who can legitimately pay themselves a dividend of £2,000 from their business without incurring National Insurance contributions on it.

For those with earnings and/or pension income of between the personal allowance and £17,500, there is a 0% starting rate band of up to a further £5,000 for savings income (interest) although it is reduced pound for pound by non-savings income above the personal allowance.

Married couples and civil partners can redistribute income-producing assets between each other to ensure that they use both allowances.

Each adult can make an individual savings account (ISA) subscription of £20,000 in each tax year, while for those under 40, up to £4,000 of this can be paid to a lifetime ISA and will attract a 25% bonus from the Treasury.  The drawback of the LISA is that unless you use the proceeds to purchase a property valued at under £450,000 or you leave it until at least age 60, a penalty applies which exceeds the amount of the 25% bonus.

For those under 18, up to £9,000 can be subscribed to a junior ISA (JISA), including by third parties such as parents or grandparents.

The rules governing eligible investments for enterprise investment schemes (EIS) have been tightened in recent years.  However, if you are comfortable with the underlying investment, up to £1 million can be subscribed (this figure is doubled where at least £1 million is invested in ‘knowledge-intensive companies’) and attracts tax relief of up to 30%.  Investments made before 6th April this year may be carried back to 2019/20 for tax relief purposes.  One of the benefits of the EIS is that unlimited capital gains can be deferred by investing the proceeds in it as long as at least some of the investment qualifies for income tax relief.

Up to £200,000 can also be invested in venture capital trusts with up to 30% income tax relief and although capital gains tax cannot be deferred, VCTs distribute interest and gains tax-free.

If considering withdrawing cash from an investment bond, pay attention to whether other income is likely to be higher in this or the next tax year and when the anniversary of the start date is as this will affect the extent to which any gain is taxed.


Making pension contributions can be helpful in reducing income tax liability as well as reclaiming child benefit, which is reduced progressively where income is between £50,000 and £60,000.  It is not necessary to have earnings to make a gross contribution of up to £3,600 and indeed, this can afford a useful way of making a portfolio more efficient, particularly where the resultant income is unlikely to be sufficiently high to be subject to tax.  Pension contributions can also help with maximising the efficiency of gifts to children and grandchildren as well as providing them with a head start for when they start work.

The maximum tax-relievable benefit increase remains at £40,000.  However this can only be carried forward for up to three years so unused allowance from 2017/18 will cease to be available after 5th April.  The increase in both the threshold income and adjusted income levels for 2020/21 onwards should mean that fewer people are caught by the complex tapering arrangements.  Nevertheless, higher earners should ensure that they are not restricted by them.

Inheritance tax

Individuals have an annual exemption of £3,000 for each tax year but if not used, it may be carried forward to the following tax year.  Therefore any unused exemption from 2019/20 must be used by 5th April 2021.

An individual may also make an unlimited number of gifts of up to £250 to individuals who do not receive any gifts covered by the £3,000 exemption.

One of the most useful exemptions, albeit limited to those able to make use of it, is the ability to gift unlimited amounts from income as long as this does not reduce the donor’s standard of living.  Such gifts should be regular and habitual and it is worthwhile ensuring that written records are kept to evidence this in the event of it being challenged by HMRC.  In this regard, it is important to note that an intention to pay regular gifts (as evidenced by a letter, for example) may suffice to demonstrate that a gift qualifies even if the donor were to die after only one had actually been made.  The exemption can be used cost-effectively to fund premiums to a life insurance policy (placed in trust so that the proceeds are outside the donor’s estate) or to make gifts to a trust directly.

The provisions for gifting are reviewed periodically and two recent recommendations, including by the Office of Tax Simplification, have been to limit the extent of gifts out of income, which suggests that it has been recognised as a valuable exemption. 

A note regarding gifts

Since the whole area of gifting is capable of abuse, it is important to ensure that any transfer, including between spouses/civil partners is made without condition.  The donor must retain no entitlement to capital or future income from it as the ownership is transferred fully.  It is also important to be aware of the anti-avoidance rules which preclude assets returning to the original owner, such as if sold to realise a loss for the recipient.