The 2022 festive period will no doubt follow the previous years’ trend of being the busiest period for UK tax filing. For many it has become as much of a Christmas tradition as cranberry sauce on the side of their Christmas dinner. In 2021 more than 31,000 people submitted their 2020 to 2021 tax return between 24 December and 26 December, according to data from HM Revenue & Customs (HMRC), with the majority of submissions being filed festively on Christmas Eve (nearly 20,000).
Whether you choose to file your tax return in between present opening and turkey eating or at some other time, it is worth bearing in mind that a careful review of all your financial affairs, including any wealth structuring, could mean your family will achieve your financial goals quicker.
Remember: HMRC has reminded those filing returns to be very careful that they are accessing the official websites and forms and to never give financial or personal information to anyone that contacts you out of the blue asking for money or personal information. HMRC sees high numbers of fraudsters emailing, calling or texting people claiming to be from the department. If you are in any doubt, HMRC advises not to reply directly to anything suspicious, and instead contact HMRC directly.
So, just as we are sure that Santa plans his sleigh route in advance for Christmas Eve, we are sure you will want to plan your tax filing in advance too. Here are some pointers to help you plan and hopefully re-join the family quicker for the joyous festivities.
• Pay into your pension
It can be easy to procrastinate about our pensions and worryingly it appears that most do, as shown by the fact a staggering amount of contributions are left in the employer-selected funds, according to the trade body Tax Incentivised Savings Association. However, even if you haven’t reallocated the underlying investments, it’s worth remembering that any contribution paid into your pension, including a self-invested personal pension (SIPP), reduces your level of taxable income for the tax-year.
You can currently contribute up to £40,000 gross across your pensions annually – through a combination of employer and employee contributions. Although this contribution could be substantially tapered to as low as £4,000 if you surpass the current annual adjusted income figure of £240,000 net per annum or if you have flexibly accessed your money purchase pension savings in a registered pension scheme.
You also should consider the lifetime allowance, which remains unchanged at £1,073,100 for 2022/23 – a level that will be frozen until April 2026. This limit is important as it includes the money paid in, as well as any investment gains. If you do exceed the lifetime allowance, possible hefty tax charges apply once you begin to withdraw funds, and also as you celebrate your 75th birthday. The lifetime allowance excess charges may also be relevant to the recipients of your pension, with the onus of the calculation and payment of a charge resting with the beneficiaries of your estate.
• Reliefs available through other tax-efficient investment vehicles
While individual savings accounts (ISAs) are not declared on self-assessment tax forms, as there is no need to disclose any income and gains due to the nature of their wrapper (not the Christmas kind), you will need to disclose subscriptions to other tax efficient investments such as enterprise investment schemes (EIS) and venture capital trusts (VCTs). This is due to the tax relief on contributions to these structures and so you will need to claim the relief due, given there is no tax relief at source.
• Reclaim what’s rightfully yours
Most of us tick the gift aid box when giving to registered charities, and as a higher rate taxpayer the benefit is that you can claim the difference between the rate you pay and basic rate on your donation. For example, you donate £100 to charity – the charity claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).
In addition, it’s worth looking through the subscriptions linked to your profession – be these related memberships, events or trade magazines – that may see some tax relief too.
• Deferring a dividend as a business owner
Given the allowance for dividend income received is £2,000 * per person, it is worth determining whether it may be preferable to defer dividend income if you are a business owner, in order to manoeuvre your income around nearby threshold. For example, if your taxable income is based on basic tax rates, you would not have to pay tax on the first £1,000 of personal savings allowance received, while higher rate taxpayers do not have to pay tax on their first £500 of savings income**. It is also worth remembering that you can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension, or other income.
While Nedbank Private Wealth does not provide tax advice, we can work with your other trusted professional advisers – introduce you to some – enabling us to work in synergy with them and you to develop a comprehensive wealth plan. Not only will this help you understand the impact of your current expenditure on your future goals and aspirations, but it will also set you on the right path for the next year, enabling you to manage more of your finances in a tax-efficient manner.
You don’t have to file your tax return while tucking into the Christmas lunch. But to avoid fines and extra costs incurred it is best to get it in ahead of the deadline of 31 January (checking it twice may also be advised).
Please note: Following the Autumn Budget:
*In April 2023, reducing the tax-free allowance for dividend income (the ‘Dividend Allowance’) from £2,000 to £1,000 from 6 April 2023 and then to £500 from 6 April 2024 for individuals who receive dividend income. Find out more.
** In April 2023, the Income Tax additional rate threshold (ART) will be lowered from £150,000 to £125,140, the income level at which an individual will not have any Personal Allowance. Find out more.
Sources: UK Government (1).
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Sources: UK Government (1).
Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Nedbank Private Wealth does not provide individual tax advice, and instead works with clients’ existing advisers or can provide an introduction if needed. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.