Making End of Tax Year 2020/2021 less taxing! (part two – investments)

The 2020/2021 tax year officially ends on Monday 5th April 2021. In part two of this three part blog on tax, we focus on how you can make the most of your money by using tax relief on your investments!

 

Use your full ISA allowance

The savings in an Individual Savings Account (ISA) are protected from UK income tax or capital gains tax, so they are very tax efficient. There is no need to declare these savings on your self-assessment tax return.

You can save up to £20,000 in the 2020/2021 tax year, so the time leading up to tax year end on 5th April is often referred to as ‘ISA season’. It is the last chance to ‘top up’ your savings to this amount. Any savings added to your ISA from 6th April will go into your new 2021/2022 tax allowance, as the shortfall cannot be carried over.

 

Exploit your Capital Gains Tax Annual Exemption

The ‘Capital Gains Tax’ (CGT) annual exempt amount is the amount of gains that you are allowed to make before paying tax on those profits. The annual exempt amount is £12,300 for individuals for the 2020/2021 tax year.

If you are looking to supplement your income tax efficiently, you could withdraw funds from an investment portfolio and keep the gains within their annual exemption.

Even if cash isn’t needed, you could take profits within the £12,300 CGT allowance and re-invest the proceeds, possibly via an ISA. This means there will be less tax to pay when you eventually need to access these funds to meet spending plans.

 

Special Investments & Tax Incentives

Business owners have long benefited from Inheritance Tax (IHT) savings and now private investors can too with ‘Business Property Relief’ (BPR). This is one of several tax incentives available to support investment into small UK companies.

Unlike gifts and Trust arrangements which usually only achieve IHT savings after 7 years, a BPR investment is effective after just 2 years.

Investments that qualify for BPR can be passed on free from inheritance tax upon the death of the investor, provided the shares have been owned for at least two years at that time.
For those with investment experience and appetite for risk, Venture Capital Trust (VCT) and Enterprise Initiative Schemes (EIS) can also bring significant tax benefits.


Effective tax year end planning is a year round job, but it’s only at the end of the tax year that you have the view to put your plans in place. Do act soon to meet the 5 April deadline.

Tax rules may change in the future, and the value of tax reliefs depends on your own personal circumstances. This article is not personal advice.

> Read part three of ‘Making End of Tax Year 2020/2021 less taxing – Pensions’

> Read part one of ‘Making End of Tax Year 2020/2021 less taxing – Allowances’


We can help

If you would like a consultation with one of our Independent Financial Advisers, please contact us by email: info@innesreid.co.uk or on our normal telephone number: 01244 347583 during office hours.

First consultations are free and appointments can be made outside of working hours, face to face or over video conferencing.

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