Utilising HMRC's Annual Allowances before 5 April 2022

04.01.2022
Matthew Waters
Tax

The UK’s fiscal year (or tax year, as it’s more commonly known) ends on 5 April and with it any annual allowances which HMRC offer for the 2021/22 tax year.

By making use of these allowances, there is the opportunity for even those who consider their tax affairs to be simple to undertake some basic tax planning. 

The most well known of these allowances is the Personal Allowance, which for the 2021-22 tax year is £12,570, and is quite simply the amount of income you can earn without having to pay tax on it. Below are some other HMRC allowances available for the 2021-22 tax year which could be utilised.

Marriage Allowance 

By claiming the Marriage Allowance, £1,260 of Personal Allowance can be transferred between husband and wife or between civil partners. At its simplest, if the lower earner is below their personal allowance by this amount, then there is a tax saving at 20% of £252. You can also backdate your claim to include any tax year you were eligible in since 5th April 2017, making the potential tax saving well worth pursuing if you were eligible.

Dividend Allowance 

For those who are company shareholders, there is an annual Dividend Allowance in addition to your personal allowance. For 2021-22 this was £2,000 meaning that if you had already utilised all your personal allowance, and regardless of if you were a basic, higher, or additional rate taxpayer, if you were to receive total dividends of £2,000 or less these would not be subject to tax. This is a useful allowance as dividends are taxed as the highest part of the taxpayer’s income, which can be at as much as 38.1% for an additional rate taxpayer.    

Capital Gains Tax allowance

For those disposing of chargeable assets such as second homes, rental property and shares, or gifting these to someone other than your spouse, civil partner or a charity, any gain is subject to capital gains tax. The tax is only paid on your overall gains above the annual Capital Gains Tax Allowance which for 2021-22 is £12,300.

Although they are treated as exempt transfers so wouldn’t utilise any of the allowance, you may still wish to consider transfers between you and your spouse or civil partner as part of your overall tax planning.

Gifts 

Gifts of money, goods, property, or investments could be subject to inheritance tax if the person who made them dies within the following 7 years. However, there are annual allowances which can be utilised to make gifts which won’t be subject to potential inheritance tax in the future. 

Each tax year, you can give away a total of £3,000 to either one person or split between several people without this forming part of your estate for inheritance tax purposes should you die within 7 years of the gift. You can carry forward one year of this allowance so any unutilised amounts from the 2020-21 tax year can be added to your 2021-22 gifts. 

There is also an annual Small Gift Allowance which allows you to make as many gifts of up to £250 per person as you wish, as long as they haven’t already had a gift utilising another allowance in the same tax year.

If you wanted to give a gift to for a marriage or civil partnership, then you can give up to £5,000 to a child, £2,500 to a grandchild or great grandchild, and £1,000 to any other person. These gifts can be in addition to gifts within your £3,000 allowance but not in addition to those given under the Small Gifts Allowance. 

These allowances provide a mechanism for the total value of your estate to be reduced each year by way of gifts to family and friends, without having to worry about it complicating your tax affairs. 

All of the allowances above are annual and so will end on 5 April 2022 and then on 6 April the allowances for the 2022-23 tax year begin. This can be used as part of your tax planning to stagger gifts or disposal across the 2 tax years to take advantage of 2 years’ worth of allowances.

If you would like to discuss how any of the above can be utilised

 

Wide-ranging tax planning and compliance services for individuals seeking advice and guidance from our team of experienced and highly qualified professionals.

Friendly and coherent advice and guidance on accounting and tax matters for small business owners including those starting out for the first time.

Established businesses requiring accounting and tax compliance services, forward thinking tax planning advice and the support to help your business succeed.

Our full range of enhanced corporate services aimed at large companies and those requiring audit, assurance, corporate tax advisory and diverse tax planning services.

Glossary

Test

This is a test definition

more