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The need to ensure clients are making the most of the tax reliefs and allowances that are available to them has possibly never been greater. The impact of double-digit inflation, a five-year freeze on most allowances and tax bands, and cuts to CGT and dividend allowances over the next two years, means that many will be feeling the pinch.

It's therefore important that opportunities to limit the amount of tax payable on their savings aren't wasted, so we've created a checklist of our top 10 tax year end planning tips to explore with your clients and their families, together with the key information you need to make tax savings a reality.

1. Pension saving: maximise tax relief

• Additional and higher rate taxpayers may wish to contribute an amount to maximise tax relief at 40% or 45% (41% and 46% in Scotland, rising to 42% and 47% from April). However, remember that the additional rate threshold is set to be cut to £125,140 from April. This means some high earning clients may wish to delay some of their pension funding until 2023/24 if it means that they get more tax relief at additional rate rather than higher rate.
• Those with sufficient earnings can use carry forward to make contributions in excess of the current annual allowance.
• A pension contribution can also help to retain the income tax personal allowance and child benefit for those with income over £100,000 and £50,000 respectively. A pension contribution reduces the 'adjusted net income' used to assess eligibility.
  
  An individual pension contribution that reduces income to below £100,000 will restore your client's full tax-free personal allowance. The effective rate of tax relief on the contribution could be as much as 60%.
  
  A contribution which brings income below £50,000 could save up to £2,636 in child benefit for a client with three eligible children.
• For couples, consider maximising tax relief at higher rates for both, before paying contributions that will only secure basic rate relief. Many clients won't know they can top-up pensions for their partners - and not just by £3,600, but up to their partner's earnings. Partners will get tax relief at their own marginal rates of tax.

Key information

• Total taxable income
• Relevant UK earnings - e.g. earnings from employment or trade only
• Pension annual allowance available from current year and previous three years

2. High earners: making a pension contribution before the TYE could increase their annual allowance

• The standard £40,000 annual allowance is reduced by £1 for every £2 of 'income' over the 'adjusted income' limit of £240,000, until the allowance drops to £4,000.
• If a client exceeds the adjusted income limit, it's possible that some of these clients may be able to reinstate their full £40,000 allowance by using carry forward. The tapering of the annual allowance won't normally apply if income less personal contributions is £200,000 or less (the 'threshold income' limit). A large personal contribution using unused allowance from the previous three tax years can bring income below £200,000 and restore the full £40,000 allowance for 2022/23.
• Remember that the annual allowance available in the carry forward year 2019/20 will be based on income in that year and the lower adjusted income and threshold income limits of £150,000 and £110,000 respectively, with a minimum allowance of £10,000. The carry forward allowance for 2020/21 and 2021/22 is based on the higher thresholds of £240,000 and £200,000 and a minimum allowance of £4,000.

Key information

• Adjusted income for this year (broadly total income plus employer contributions)*
• Threshold income for this year (broadly total income less individual contributions)*
• Any unused annual allowance available from current year and previous three years

* Further details of what is included in adjusted and threshold income can be found in our practical guide.

3. Clients approaching retirement: boost pension saving now before triggering the MPAA

Anyone looking to take advantage of income flexibility for the first time may want to consider boosting their pension pot before April, potentially sweeping up the full £40,000 annual allowance from this year, plus any unused allowance carried forward from the last three years.

Triggering the Money Purchase Annual Allowance (MPAA) will mean the opportunity to continue funding into DC pensions will be restricted to just £4,000 a year - with no carry forward.

If income is required, it might be worth considering other ways of meeting that need, such as taking money from ISA savings or bonds. In this way, the MPAA can be deferred and the full annual allowance retained for a while longer. Alternatively, clients who do need money from their pension can avoid the MPAA and retain the full £40,000 allowance if they only take their tax-free cash.

Key information

• 'Income' required
• Non-pensions savings that could support 'income' required

4. Employees: sacrifice bonus for an employer pension contribution

The tax year end often coincides with business year ends and, for some employees, this could mean a bonus payment. 'Exchanging' a bonus for an employer pension contribution before the tax year end can bring several benefits.

The employer and employee NI savings made could be used to boost pension funding, giving more in the pension pot for every £1 lost from take-home pay.

Key information

• Size of bonus
• Pension annual allowance available from current year and previous three years.
• Does the employer allow bonus sacrifice?
• Employer's willingness to share NI savings

5. Business owners: take profits as pension contributions

• For many directors, taking significant profits as pension contributions could be the most efficient way of paying themselves and cutting their overall tax bill.
• If the director is over the age of 55 they will have full unrestricted access to their pension savings, although this might trigger the MPAA of £4,000 if any income is taken in addition to tax free cash.
• There's no NI payable on either dividends or pension contributions. Dividends are paid from profits after corporation tax and will also be taxable in the director's hands, and this year the tax charge is up by 1.25% percentage points. By making an employer pension contribution instead, tax and NI savings can boost a director's pension fund.
• With the main rate of Corporation Tax set to jump from 19% to 25% from April 2023, larger employers with profits over £250,000 will see a significant increase in the amount tax relief available by delaying funding until the new financial year. Companies with profits between £50,000 - £250,000 will not pay the full 25% rate on their profits but will still be better off delaying funding. Small companies with profits below £50,000 will not be affect by the rate hike so will see no benefit to delaying their pension funding.

Key information

• Company accounting period
• Company pre-tax profit
• Pension annual allowance available from current year and previous three years

6. Use ISA allowances

ISAs are free of both income tax and CGT and this protection from tax charges will become increasingly valuable following the cuts to the CGT annual exemption and dividend allowance. For those who hold all their savings in this wrapper or a pension, it's possible to avoid the chore of completing self-assessment returns.

The ISA allowance is given on a use it or lose it basis, and the period leading to the tax year end, often referred to as 'ISA season', is the last chance to top-up.

For clients with a 'flexible' ISA, it may be possible to repay any cash withdrawals made earlier in the current tax year in addition to using any unused allowance.

Key information

• Remaining annual ISA allowance

7. Last chance to pay missed voluntary NI contributions

Those eligible for the New State Pension, i.e. men born after 5 April 1951 and women born after 1953, have until 5 April this year* to make up any gaps in their contribution history for the tax years between April 2006 and April 2016.  

From 6 April 2023* it will be only possible to pay voluntary NI contributions to plug gaps arising in the last 6 years. Gaps may arise if clients were living or working outside the UK, were unemployed or had low incomes in a tax year.

* Update - as of 7 March 2023, this deadline has been extended to 31 July 2023 as a result of public concerns about meeting the original deadline due to blocked phone lines. However, there's still an advantage in making the voluntary NICs before the end of the tax year, as the cost will increase from 6 April 2023. 

Eligibility to the State Pension normally requires a minimum of 10 years contribution history with 35 years needed for the full state pension amount. Of course, it only makes sense to plug any gaps if the client wouldn't otherwise achieve the full New State Pension.

The voluntary contribution rates are dependent upon the client's employment status in the missed year. These are £3.15 a week for Class 2 NI contributions (self-employed and overseas workers) and £15.85 a week for Class 3 (all other eligible classes). At this year's Class 3 rates, a payment of £824 will buy an extra annual pension of £275. Once the State Pension is in payment, this cost would be recouped in three years. This will look even more attractive next year as State Pensions are set to rise by 10.1%.

8. Investments: take profits using CGT annual allowances

• The annual CGT exemption is to be cut £6,000 from April and then cut again to £3,000 from April 2024. This means maximising the current allowance of £12,300 before the tax year end is crucial to limit the amount of gains which may be exposed to CGT.
• Even if cash isn't needed, taking profits within the £12,300 CGT allowance and re-investing the proceeds means there will be less tax to pay when clients ultimately need to access these funds.
• Proceeds cannot be re-invested in the same fund for at least 30 days, otherwise the expected 'gain' will not materialise. But they could be re-invested in a similar fund or through a pension or ISA. Alternatively the proceeds could be immediately re-invested in the same investments, but in the name of the client's partner.
• If there is tax to pay on gains at the higher 20% rate, a pension contribution could be enough to reduce this rate to the basic rate of 10%.
• More information on how to use the annual CGT exemption can be found in our practical guide.

Key information

• Sale proceeds and cost pool for mutual funds/shares
• Gains already made as a result of any rebalancing of portfolios during the year
• Gains/losses on other assets sold - e.g. second homes
• Losses carried forward from previous years

9. Bonds: cash in bonds to use up PA/starting rate band/PSA and basic rate band

• If your client has any unused allowances that can be used against savings income, namely the personal allowance, starting rate band for savings or the personal savings allowance, now could be an opportunity to cash in offshore bonds, as gains can be offset against all of these.
• If not needed, proceeds can be re-invested into another investment, effectively re-basing the 'cost' and reducing future taxable gains.
• For those that have no other income at all in a tax year, total gains of up to £18,570 can be taken tax free. This is made up of personal allowance (£12,570) plus starting rate band for savings (£5,000) plus personal savings allowance (£1,000). Remember that non-savings income is taxed before savings income and if the exceeds £17,570 the PA and starting rate band will not be available.
• If your client doesn't have any of these allowances available, but their partner (or even an adult child) does, then bonds or bond segments can be assigned to them so that they can benefit from tax free gains. Remember, the assignment of a bond in this way is not a chargeable event.

Key information

• Details of all non-savings and savings income
• Investment gains on each policy segment

10. Recycle savings into a more efficient tax wrapper

• Using tax allowances is a great way to harvest profits tax free. By re-investing this 'tax free' growth, there will be less tax to pay on final encashment than might otherwise have been the case. That is to say, when your clients actually need to spend their savings, tax will be less of a burden.
• But there may be a better option to re-investing these interim capital withdrawals in the same tax wrapper. For example, they could be used to fund a client's pension where further tax relief can be claimed, investments can continue to grow tax free and funds can be protected from IHT.
• Similarly, capital taken could be used to fund this year's ISA subscription, protecting future growth from income tax and CGT. However, payments in to an ISA do not receive tax relief, and values on death are not protected from IHT.
• Which leads nicely on to one final consideration for clients over (or approaching) 55 - should ISA savings be recycled into their pension to benefit from tax relief and IHT protection?

Key information

• Unused personal allowances for extracting investment profits
• Remaining annual ISA allowance
• Pension annual allowance available from current year and previous three years and relevant UK earnings

Summary

Effective tax planning is a year-round job. But it's only at the end of the tax year that you have all the information needed to use the allowances and reliefs in a tax efficient way. This can be a boost to savings but remember that in most cases, allowances not used before the end of the tax year will be lost altogether.

Our practical guides provide further help with tax year end planning:

• Tax year end guide to utilising the CGT annual exemption
• How to maximise pension savings
• The tapered annual allowance - adjusted income and threshold income