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Personal Tax Planning for 2021/ 22

06.04.2021

Private Client

With the financial fallout from COVID-19 over the last year being the fiscal equivalent of fighting a war at more than £280 billion, we will be paying back that debt for many decades to come.

The new tax year looks much the same as the previous 12 months from a personal tax planning perspective - while we gradually recovery from the economic affects of the pandemic.

Personal Tax Planning Factsheet

Tax increases and allowances, effective April 2021

Personal tax allowance increased to £12,570
Basic-rate threshold capped at £50,270, higher-rate up to £150,000
Income tax rates have been frozen until April 2026 - which could push many taxpayers into higher tax brackets over the next five years -resulting in them paying considerably more income tax
Dividends allowance remains at £2,000
Above the dividends threshold - a basic-rate taxpayer will pay tax at 7.5% and 32.5% for a higher-rate taxpayer.

Capital Gains Tax (CGT)

Assets sold in 2021/ 2022 for more than £12,300 will be liable for capital gains tax (CGT)
The rate of tax will depend on the type of asset sold and which rate of income tax you pay.
Assets held in a trust are treated differently - capital gains tax kicks in at 28% from residential property or 20% for gains from other chargeable assets worth more than £6,150

Pensions

For 2021/ 22 until April 2026 - the lifetime pensions allowance remains capped at £1,073,100.
Some pension savers face being hit with a 55% tax charge if they withdraw anything above this limit as a lump sum over the next five years. If the amount is taken as income - they face a 25% tax charge.
The maximum you can save into your pension pot for 2021/22 remains at £40,000.

Inheritance Tax

Estates worth less that £325,000 will be tax-free, while the flat-rate of inheritance tax above this threshold remains at 40%
The final increase to the residence nil-rate band was announced in 2020/21 - making it possible to protect a further £175,000 when passing on the family home to children or grandchildren.

CONTACT US

For personal tax advice and support on 01223 810 100