With Christmas and New Year behind us, year-end tax planning should now be on your employees’ radars. The 2021/22 tax year will end on Tuesday 5th April. This year, there is no Spring Budget and Easter arrives on 15th April, so there shouldn’t be any obstacles standing in the way for your employees. However, the sooner they start their year-end tax planning the better, as some of the decisions they might have to make cannot be made quickly.
As an employer, the wellbeing of your employees is vital to running a successful business. And, come April, the last thing you would want is to see your employees stressed and worried over meeting the new tax year deadline. That’s why, it can be beneficial to encourage your employees to start their planning now. Here are a few areas they could consider.
Pensions
Making pension contributions is one of the few ways that your employees can receive full income tax relief and reduce their taxable income. The second benefit matters in a world where their level of taxable income can determine whether they suffer the High Income Child Benefit tax charge or retain entitlement to a full personal allowance. The end of the tax year is a good time to assess how much they can contribute as they should have a good idea of their income for the year.
Inheritance tax
Now that we know the Chancellor does not have any plans for major reform of Inheritance Tax (IHT), there is a stable framework on which to plan. As ever, first on the list to consider is use of your employees’ annual exemptions, such as the £3,000 annual gifts exemption. With the nil rate bands currently frozen until April 2026, it is more important than ever for employees to not let these go to waste.
Capital gains tax
As with IHT, the Chancellor has recently clarified his plans for Capital Gains Tax (CGT). The annual exemption, which currently allows someone to realise CGT-free gains of up to £12,300 each tax year, will not be slashed, nor will the tax rates be raised to income tax levels. That has simplified the year-end planning process, as there is now no point in realising gains above their annual exemption in case there would be more tax to pay in the near future.
Year-end tax planning might not be at the forefront of your employees’ minds, so communicating the benefits of early planning could have a significant impact in the long run.
However, if your employees think their personal finances could benefit from year-end planning, it’s important they do not wait until the last moment to seek advice from a professional adviser. Calculations will often need data that can take time to collect, particularly on the pensions front.
For more information on end of year tax planning, download Secondsight's 2021/22 end of year tax guide here.
Please note
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax or benefit advice.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Secondsight is a trading name of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority.