New Tax Year – New Plan?

Whilst the dawn of the new tax year may not be an occasion most people recognise, it’s something we get quite excited about as financial planners!

The end of the previous tax year and the start of a new one means that an individual’s set of allowances resets – giving you a whole year to plan!

Here we look at some of the available allowances and advise on the best way to approach them.


If you are able to, maximising your ISA allowance is a good idea – as if you don’t use it, you lose it. The limit for adult ISA contributions in the tax year 2021/22 is £20,000. This can be a combination of cash, stocks and shares and even the Lifetime ISA for eligible adults.

ISAs are a powerful tool for sheltering money in a tax free environment, and those with the means should consider maximising the ISA contributions of their spouse, and potentially also their children. Children under the age of 18 have an annual Junior ISA allowance of £9000 in the current tax year.

Pension Contributions

Pension contributions also align to the tax year, so each individual’s annual allowance resets on 6th April. Individuals can save as much as 100% of earnings into their pension each tax year up to a maximum of £40,000 gross. Basic rate tax payers can claim relief of 20% on all personal pension contributions made from income or savings, meaning a gross £10,000 pension payment would only cost £8,000 net. Higher rate taxpayers can claim 40% relief, taking the net cost of a £10,000 pension contribution to only £6,000.

There are many benefits of considering extra pension contributions within a tax year or a business’ financial year. These include regaining allowances such as the personal allowance, regaining qualification for child benefit, reducing corporation tax liability, and bringing earnings into a lower tax bracket. These are all complex to explain, but the point to take home is that additional pension contributions can often serve to increase the ‘cash in hand’ position of the individual, as well as the long-term benefit of adding to your retirement ‘pot’.

Pension contributions for spouses and children could also be considered as a way of extracting money tax efficiently from a business.

Carry Forward

In what is known as ‘carry forward’ rules, pension contributions can be backdated for up to three tax years in instances that an individual’s full allowance hasn’t been used.

Therefore, if you plan to contribute the maximum annual allowance in the current tax year, you should consider whether you have unused allowances from the past 3 years. As unused allowances align with tax years, you will be able to look back to 2018/19 and top up any unused allowances provided that you were a member of a registered pension scheme and have the relevant earnings.

Capital Gains Tax

The Capital Gains Tax exemption is, on the whole, the most underutilised tax allowance. For the tax year 2021/22 individuals can take profit from their investment portfolio of up to £12,300 per annum without paying Capital Gains Tax.

Those with taxable investments should plan the timings of when they take profits, using CGT annual allowances to fund income or cash requirements.

Another option is to take profits within the CGT allowance and move the money into more tax efficient investment vehicles like pensions and ISAs. This can help to shelter gains from capital gains tax in the future, create immediate income tax savings (in the case of pension contributions only) and ultimately improve the tax efficiency of their investment portfolio by enhancing the ability to take profits more tax efficiently in the longer term.

The advice is very simple; tax has a major impact on net investment returns in the longer term and the best way to manage that liability is to ensure that you action a small number of items on your tax year end checklist each year. The cumulative effect of doing so will compound into real monetary savings. For more information on any of the above points, please contact our financial advisers for advice.



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