124. Year end tax tips

Prepare for a dive into a rapid-fire checklist for the end of the tax year. Get ready for crucial tax-saving tips and insights that will set you on a path to financial empowerment.
Areas covered:
- ISA Allowance: Understanding the current £20,000 allowance and making the most of it for tax-free growth and earnings.
- Capital Gains Tax Allowance: Exploring the shrinking annual allowance and strategies to capitalise on it before it drops to £3,000.
- Pensions: Unveiling the tax efficiency of pensions, contribution limits, and the benefits of using the pension wrapper.
- Child Benefit: Clever tactics involving pensions, salary sacrifice, and charitable giving to retain child benefit entitlement.
- Inheritance Tax: Uncovering the power of the annual £3,000 gift exemption and its cumulative impact on estate planning.
- HMRC website: Find a downloadable form for keeping track of your gifts for inheritance tax planning.

 
Your Hosts:

Julie Flynn is an experienced independent financial adviser and financial coach. Justice and equality drive Julie. Which is why she’s spent years studying and researching how stress affects our financial decision making.

Julie is best known for her work with women who have lost their partner and coaching financial services business who want to implement fair and transparent charges.
Ebb & Flow Financial Coaching | Bree Wealth & Tax | Instagram

CO-HOSTS
Emily Pool is a Financial Planner and Will Writer. She is passionate about empowering people to invest their wealth (pensions and savings) sustainably and in line with their personal values.

Michelle Lambell  started her career in financial services as a Stockbroker in 1999 undertaking both advisory and discretionary investment management. Today she is a Chartered Financial Planner, specialising in retirement planning advice, pensions and investments and a Certified Financial Coach. 

Sara Walker is a financial planner and financial coach with 33 years’ experience in financial services. She wants all women to feel financially confident and uses her professional and life experiences to support and educate women over 40 so they in turn feel able to support and be role models for the younger women in their lives.

Jennifer O'Neil is a mortgage and protection specialist and director of Athena Mortgages. Having been in the industry since 2014 Jennifer decided to set up a company in 2020 that suited her core values as a broker – integrity, service, honesty and continuous improvement.
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Transcript

Julie [00:00:07]:

My August is just crashed.

Michelle [00:00:14]:

IT is not a friend today.

Emily [00:00:16]:

I'm ready.

Julie [00:00:21]:

Oh, are we all good?

Emily [00:00:24]:

Yes. I'm going to do some good facial expressions for your friend, Michelle.

Julie [00:00:32]:

Oh, welcome back to this episode of the Women and Money Cafe. Now today, we are rapidly approaching the end of tax year. So we thought we'd give you a really short, sharp, punchy episode on a checklist of all the things you might want to consider as we approach that deadline. But today, I am joined by Emily. Hello. Hello. And I've got Michelle.

Michelle [00:00:53]:

Hi, Julie.

Julie [00:00:53]:

Hello there. How are we all doing today?

Emily [00:00:57]:

Great. Although I'll be a lot happier after the 5th of April.

Julie [00:01:01]:

Michelle, are you enjoying this end of tax year run up?

Michelle [00:01:05]:

No. I'm probably in the same vein as Emily. To be fair, I'm looking forward to the morning of 6th April.

Julie [00:01:11]:

Right. So this is a little insight into life as a financial adviser. It's absolutely great being one of us around about Christmas time because nobody really wants to talk to us because they're all out doing the Christmas shopping, which means that we have time for the build up for Christmas. But if you want to see what a really frazzled financial adviser looks like, just go and pick anyone off the street right now. They build up to April, and you'll see them all looking slightly harassed. And that's the 3 of us today. But we're going to introduce a sea of calm and walk you through the things that you might want to be thinking about at this time. Yeah.

Julie [00:01:41]:

So is the we've got this little list that we want to work through. The top of the list is the most obvious Money, that is using your ISA allowance. So, Michelle, do you want to talk us through what everybody should be doing with the ISA right now?

Michelle [00:01:56]:

So with your ISA, the current allowance is £20,000, which means you can put 20,000 pounds into Money of the ISAs that are available, main forms of which will be cash ISA, or stocks and shares ISA. So it's just making sure that if you've got the funds available, use them because it allows your money to grow free of tax or to get interest free of tax, which, you know, if you've got money in the bank already and you're earning, you know, interest on it that you're now paying tax on, pop it into a cash ISA with that allowance, and you won't pay tax on that money.

Julie [00:02:31]:

Fantastic. Also, if you're a little bit younger than us, you've got the lifetime you've got the lifetime ISA that you can get your hands on as well, which got a nice bonus, particularly helpful if you're saving up for buying a house. We had a little discussion at the start about whether we were going to mention the other ISA, and we agreed that we wouldn't. But I'm going to do it anyway.

Michelle [00:02:52]:

I had a feeling you might.

Julie [00:02:55]:

So in in the offing is potentially a new ISA. It's not with us yet, and it hasn't been decided what it'll look like and what the rules are. But there's a suggestion that the British ISA will be with us within the next 12 months, which is basically an extra £5,000 ISA allowance. But you can't have it yet, so you don't need to do anything with it yet. Yeah. Apologies for that. I said I wouldn't do it. I went and did it, didn't I?

Emily [00:03:18]:

We have to. What about the ISA allowance you get if you're even a little bit younger than the LISA allowance. We need to talk about the junior ISA as well. Obviously, all your grandparents out there sloshing around with cash, creating lots of interest that you're getting taxed on. Why don't you just slip it into the, grandchildren's junior ISA? That'd be a really good way to bring a smile to the faces of those little grandchildren and probably your own children.

Julie [00:03:49]:

Yeah. Oh, good show, Emily. Good show. You just don't want me to talk anymore about the British either, don't you?

Emily [00:03:53]:

Well, I think we'll talk about it a bit more when we actually know it's going to happen, but there could be a general election between now and then, and I think we need to see what happens.

Julie [00:04:02]:

Alright. So to stop me talking about things I shouldn't be talking about, the next item on the checklist was cap usually, capital gains tax allowance. Somebody want to explain what the capital gains tax allowance is for the listeners and how we use

Emily [00:04:17]:

that? Well, it's another one that's almost not worth mentioning because, it's being eroded by every year. It's getting smaller and smaller. Yeah. Not so long ago, it was about 12,300 that we could, we could sell assets. And that doesn't include, things like your own residence, but it would include things like buy to let property, and other assets such as stocks and shares that weren't wrapped within the ISA wrap or a pension. And when you, when you sell something and make a gain, then the government want a little bit of that profit. So, yeah. So as I said, along a few years ago, it was 12,300 that we all had.

Emily [00:04:57]:

And then it got cut in half. It was 6,000 this current tax year. And then I think next tax year from 6th April, it becomes 3,000. So that is quite a significant drop. Definitely think about making those transactions in this current tax year. If you haven't used that allowance yet and you're needing to sell something. But probably also worth just checking on your, if you've got a, a retail platform such as, I don't know if am I allowed to mention their names? I know Fidelity, Vanguard, or whatever. Perhaps you're managing your investments yourself.

Emily [00:05:36]:

You can normally run a report that gives you a CGT position at this point, and it will tell you how much headroom you've got left. So, yeah, use it or lose it.

Michelle [00:05:48]:

I think the other really important thing with this sort of CGT side of things is where it is being drastically reduced and it is quite drastic reduction that we've had this year and we will have next year. If you go over that capital gains tax allowance you do need to register for self assessment in most cases. So it's just bearing in mind that if you can use a bit more this year you know with the extra bit we've got this year use that, but that's something to be mindful for you, you know, future years because that's certainly something we all have to keep an eye on now for our clients that if you go over that, then you do have to register to tell HMRC that you have done so.

Emily [00:06:29]:

Mhmm.

Julie [00:06:30]:

Alright. That was a good catch, Michelle. Thanks for that.

Emily [00:06:33]:

There was a little change as well in the, the recent announcement from the chancellor wasn't there that the capital gains tax to be charged on residential investment property is reducing from 28% to 20%. That's quite

Michelle [00:06:51]:

a significant drop. 24, isn't it, I think?

Emily [00:06:55]:

24. Yeah. You're right. Still a significant drop for people who were sitting on property that they perhaps want to get rid of. Probably not going to sell it now, but before the end of this tax year, but, Yeah. Just do bear in mind that it has reduced a bit.

Julie [00:07:10]:

Okay. So far, what we've talked about is we've talked about 2 allowances that you've got. So your ISA allowance is the amount you're allowed to put into an ISA and get tax free growth and tax free earnings on your money. Talk about capital gains tax allowance. There's a go and selling stuff and realizing the gain and not having to pay tax on it. Next one's not so much an allowance, such as the as how you can use a pension and the fact that you've got an annual allowance each year for that. So who wants to talk to me about pensions and all the wonderful tax Jennifer? Michelle's just popped up there. Michelle's practically bouncing up and down on her seat.

Julie [00:07:45]:

She's like me, me, me. Please can we talk about pensions?

Michelle [00:07:50]:

I was, you know, pensions are one of my favourite things, but no. They are the most tax efficient, so it's important that if you can contribute. So pensions you're allowed to put in a maximum of £60,000 or a maximum of your earnings each year. So it's important that that £60,000 becomes £20,000 if you have a salary of £20,000. But what it does is it allows you to put it in and reduce sort of you get income tax relief on that money that goes in, which is what makes it so attractive to everybody. So it's important that if you've got surplus money you can fund your pension because obviously you're putting it towards your retirement and it's giving up a bit of your income now to give you an income later in life. But what it does also do is it has the effect of sort of extending what your sort of basic rate tax band, and I think that's one of the most useful mechanisms it can have. So I don't know if someone wants to pick up on that on a certain sort of point I know we discussed before.

Julie [00:08:53]:

I was just checking episode 20, people. It's called pension tax relief WTF, to think that through really carefully. If you go back and listen to episode 20, it's going to walk you through exactly how this pension tax relief, I think, works because you hear us talk about it all the time. And even I get animated about the term, so it must be good. But if you want to know, how does that work if I'm an employee? How does that work if I'm self employed? How does that work if I'm a basic rate taxpayer, a high rate taxpayer, a nontaxpayer? That episode has got everything in it for you. So episode 20, pension tax Julie, WTF. I believe that

Michelle [00:09:35]:

answers your question. Yeah. It does actually.

Emily [00:09:38]:

Excellent.

Michelle [00:09:39]:

But, yes, you know, it's just being mindful of it if you can do it, and I think that's one thing that we end up so busy by because clients see their accountants or have a think about it and then decide to contribute to their pensions. If you do wish to do it obviously it has to be in your pension by the 5th April this year.

Emily [00:09:57]:

I would just also say that, for older clients who are above the age of, say 50 or early fifties, and maybe thinking about retiring soon, just remember that, currently, up until October of 2028, the current pension access age is 55. So when you're in your fifties, I do tend to speak to my clients about, pensions in using the pension wrapper always before the ISA wrapper. Because you can almost treat it a little bit like an ISA Women that it's very much almost instant access Women you become age 55, it is instant access. And what the ISA wrapper doesn't have is obviously that, that tax relief that we've just talked about. So even if you've got a load of money sitting there, you're thinking, wow, I am going to need it maybe in 3, 4, 5 years' time. Just think. Well, actually, stick it through the pension, get an extra 25%, because there's an extra 25%, which represents the 20% basic rate tax relief. And, and that's just a way of making money overnight, really.

Emily [00:11:07]:

It's free money. And it's definitely worth thinking about if you're in that older age group. Do bear in mind that when you take it out, you are taxed on, 75% of the pot, and only 25% of it's tax free. So in that respect, it's slightly different from the ISA, but this this massive tax relief you get on the way in is really worth it. And knowing that you can access it pretty quickly as well is useful.

Julie [00:11:33]:

Right. Excellent, ladies. And then another thing I've got on my checklist is kind of connected to pensions, but not really connected to pensions. It's child benefit. And everybody's like, where the hell is she going with this? What's that got to do with the end of tax year? So, who wants to explain to the listeners where I'm going with how pensions can help you with your child benefit?

Michelle [00:11:58]:

So with your child benefit, if you earn over £50,000, you start to lose your child benefit until you totally use it at lose it at £60,000. So, effectively, your child benefit gets reduced, and then you have to pay that back, essentially. And that can be quite difficult for some people but the magic of the pension contribution is you can extend your basic rate

Emily [00:12:27]:

to tax

Michelle [00:12:28]:

band and it can actually bring you out of losing your child benefit. So if you make a pension contribution to bring your earnings essentially down below the £50,000 limit, you will be able to retain your child benefit.

Julie [00:12:46]:

Alright. Fantastic. And I guess this idea of bringing down your earnings so that you can keep hold of the child benefit. So Michelle's just talked to us there about using a pension contribution. The alternative way of doing it is if you're in an employer scheme, they've got salary sacrifice. This is another means of reducing your salary so that you can get under that magic 50,000. Or the other one is charitable giving. If you've got a favourite charity, go and sneak them some money and see if you can get yourself back under the 50,000 and keep your child benefit.

Julie [00:13:20]:

Okay. Is there anything else we should add to that?

Emily [00:13:23]:

Well, I would say also, if you're like me, and I don't keep a great record of my charitable giving, this is one of the useful things that you can do as you come into March at the end of every year. You know, if you're always giving through just giving, you'll have a record set up under your name where you can just go in, and it just shows you all of this JustGiving, that you've done throughout the year. So that's the really quick and easy way. So you can grab that, and put that in your tax return and then work out what else you need to do on top.

Julie [00:13:56]:

Oh, great top tip, Emily. Great top tip. I've also got mine tagged in Starling. So Oh, that. The charitable, you can tag some of your spending on that, the styling. So you can just go up and search for the last the previous 12 months under that tag, and that'll help you as well.

Emily [00:14:13]:

That's a great idea as well. Good.

Julie [00:14:16]:

Anything else, ladies, on that subject?

Michelle [00:14:19]:

No. I was just going to go back to the child benefit and just sort of make it clear that if you're in a household with somebody else, it doesn't necessarily be you that has to earn over 50,000. If the household is receiving child benefit and maybe you're receiving it for your children, but you live with your partner or, you know, the other person who doesn't receive the child benefit if they earn over 50,000 it applies. It is for per household rather than, you know, per individual person, that person claiming child benefit. So the example is my husband had a lovely surprise because he's had a letter to tell him he needs to pay some further tax because of child benefit I receive for my children.

Emily [00:15:02]:

I see so many people sleepwalking into this because, you know, you hear from your boss, wow, you've had a pay rise. Wow. Wow. Wow. Wow. Wow. You know, you start spending it all. You completely don't realize the fact that you're receiving this child benefit every month into your bank account, that that's going to be impacted.

Emily [00:15:19]:

You just wouldn't put the 2 together. So that's why you guys listen to this show, and you're going to go out and tell all your friends. So yeah. Yeah. To be fair,

Julie [00:15:28]:

it's a really easy one to get caught out by. Really easy. Yeah. Okay. Then, I think this is the final thing I've got in my checklist for people to think about at this time of year. So we've talked about allowances. The other favourite word with HMRC is exemptions. So you this has to do with inheritance tax now, and you get an annual gift exemption of £3,000.

Julie [00:15:51]:

And what this means is each year, you are allowed to gift £3,000 to anyone, any way, shape, or form that you like, and that will not be taken into account should you die for inheritance tax calculations. Now you're sitting there and you're thinking, £3,000. I'm not getting excited about that, Julie. I'm not getting excited about that at all. Like well, let me make it a tiny, tiny bit better. Okay. So if you didn't use last year's exemption, you can use that now as well. So, technically, that's £6,000 that can be gifted.

Julie [00:16:21]:

You're like, again, Julie, I'm failing to get excited by this. Alright? And it's one of those little things, but it's cumulative if you were doing it every year. So if your parents or grandparents or you're listening to this and you are someone or you your parents are thinking about how to manage their estate, this is one regular easy way that they can start to put some IHT planning in place. Thoughts on that, ladies?

Emily [00:16:46]:

Well you've just reminded me to speak to my parents about, topping up my children's student ISAs so thank you Julie. That is a great, great way of, helping the, the younger generation. Yeah. I think definitely it should be used on top of, all of the other stuff, the charitable giving, the pensions, everything. And there's a lot you can do, but definitely use your, your £3,000 use it or lose it.

Julie [00:17:14]:

Can you share a quick story?

Emily [00:17:16]:

Yeah.

Julie [00:17:16]:

Right. Because, you know, when we're studying and we're doing we learn all these really complicated inheritance tax calculations and really fancy schemes. Right? And you're like and then and then the annual exemption gets sneaked in there at £3,000. And you're like, yeah. Big fat hairy deal. Right? We're looking at massive estates. That's a drop in the ocean. But what I've found is by the time people come and talk to us about RHT planning, it's a little bit late.

Julie [00:17:43]:

Definitely. If they come to us earlier, it would be so much easier. And I recently had a client that came to me younger than normal. And what could have ended up being a really, really big estate with a really big IHT bill attached to it, by using things like the annual exemptions, we've got the bill down to 0. Wow. So just early planning and really simple planning and just using that exemption cleverly, we we've mitigated it. So like I said, it's not Women you instantly get excited about, but it can be pretty powerful cumulatively.

Emily [00:18:19]:

Yeah. No. So the admin task you can do this time of year is just look back and see what gifts you have made and, make sure that you're keeping a record of those because no doubt your executor, when it comes to sorting out your taxes on death, will thank you for that. It will make their lives life a lot easier if you've got it all written down somewhere. And there is actually a form you can download from the HMRC website that you can keep up to date, keep it there with all of your papers, your will. And, yeah, you'll be you'll be fondly remembered rather than, with expletives.

Julie [00:18:58]:

K. Have we missed anything? Or is that everything they need that people need to know for the end of tax year?

Emily [00:19:06]:

I'm just going to throw it in there because I love wills. Why don't I get your will out and read that as well? Okay.

Julie [00:19:15]:

So then just a quick recap then. Go and check your ISA allowance and see if you've got a spare cash knock and about that you can go and utilize some of that allowance. If you've got gains on any of your investments, then get in there and use the capital gains tax allowance at £6,000 before it gets slashed to 3,000 in the next tax year. Pinching contributions. Go get yourself some of that lovely tax relief and maybe with the added bonus of saving yourself the child benefit as well. Don't forget charitable giving because we like that kind of thing. And the tiny but powerful £3,000 annual extension for IHT. Is there anything else you would like to add for the listeners, ladies, before we wrap this one up?

Michelle [00:19:57]:

No. I think just don't, you know, don't get too caught up in it. And sometimes I do actually say to clients and to friends, if you've just done this exercise in March, go and do it again at the end of April for next year because then you won't have the stress at the end of next year. So I think that can take some of the stress away from you. If it's something you do automatically because you have the funds for these things, just go and do them. Because if it's already in your head from now, it's very easy to do, and then you won't have to stress about it sort of the year after. You can give yourself a year off then effectively.

Emily [00:20:32]:

I would just say also if you are a business owner, this is the kind of conversation you should be having with your, accountant as well. It is good. It's a really good idea to just work out just a few weeks before the end of the tax year what your profit's going to look like because that will dictate how much you might be able to then put into your pension as an employer. And you need to do that in your accounting year. So if your accounting year does align with the tax year, this is the time to be doing that. You don't want to miss that deadline.

Julie [00:21:05]:

Right. That is fantastic advice, ladies. Thank you very much. Okay. So it was a short but sweet stop, the inter tax year planning. Join us in 12 months time where we may or we may not be talking about the British ISA. look forward to filling you in then. Until then, please do take care of yourselves.