Tips for the end of the tax year

It’s that time of the year when accountants remind you of all the things that you should be doing before the tax year ends on 5 April. Here are a few tips about some actions you might consider:

Inheritance tax (IHT)

Every individual can give away £3000 in any tax year with no IHT implications at all. You can also carry forward one year’s exemption for a single year only. So if you wish to reduce the IHT liability on your estate, and have not used your 2020/21 IHT annual exemption, now is the time to use that exemption, together with your annual exemption for this tax year, before it is lost for good.

If you wish to make gifts in excess of the annual exemption, you could consider calculating your net income for this tax year, deducting the sum you have spent on maintaining your normal standard of living, and making a gift from the surplus to your children or grandchildren. If you intend to make similar gifts on a regular basis, and they always come from surplus income, no IHT should be due on the gifts even if you don’t survive them by 7 years.

Now might also be the time to update your spreadsheet of gifts made in excess of the annual exemption over the last 7 years. If any have fallen out of account this will free up some of the IHT nil rate band that could be used to make further gifts within the nil rate band if you wish to do so.

Capital gains tax (CGT)

If you have incurred a CGT liability for this tax year it is worth considering whether you have any assets with inbuilt losses that you could dispose of before the end of the tax year to realise a loss to offset against the gain.

If you have not incurred a CGT liability, you might wish to consider disposing of shares to use your annual CGT allowance of £12,300 if you are likely to need access to a cash sum of this amount or more in the near future.

Trusts

If the trust of which you are a trustee does not pay tax at the end of the tax year it might be a non-event for you. Bear in mind though that 5 April marks less than 5 months from the deadline to register many non-taxable express UK trusts with the Trust Registration Service. Ask us if you would like more information about this.

Probate and estates

If assets have been realised in the estate of which you are executor you should consider whether cash distributions could and should be made now to residuary beneficiaries. Such distributions are taxable when paid so if you straddle a distribution over two tax years it might prevent the beneficiaries being brought into a higher income tax band.

If you would like further information on any of the above tips then please get in touch with our private wealth services team by requesting a consultation.