Client Newsletter – February 2021

End of Tax Year Planning

Our last newsletter provided some positive news highlighting key milestones for our company – our 20th year anniversary and the 10th year anniversary of one of our core investment propositions. And now we find ourselves approaching another milestone. That of being in lockdown conditions for a full year.

However, with the mass role out of vaccinations and distribution already made to the most vulnerable in the UK, there are positives to take, and we all hope normal life can resume slowly over the coming year.

Considering all that is going on, it is important that we remain focussed to ensure that you keep on top of your finances. The tax-year end (TYE) is just around the corner, therefore, we thought we would share some top tax saving ideas for consideration before the 5th April 2021. We hope you find these useful and if you would like to chat, please get in touch, and we will be happy to assist.  

Pension savings and tax relief

  • Additional and higher rate taxpayers may wish to make a pension contribution to maximise tax relief at 40%, 45% or even 60% (where the personal allowance is reinstated) while you have the opportunity.
  • Those with sufficient earnings can use carry forward to make contributions over the current annual allowance of £40,000.
  • For couples, consider how to maximise tax relief before paying contributions that might only secure basic rate relief. Many clients will not know they can top-up pensions for their partners and not just by £3,600, but up to their partner’s earnings, and their partner will receive tax relief.

High earners and annual allowance (AA)

  • High earners could face a cut in the amount of pension contributions they can make and receive tax relief. The standard £40,000 AA is reduced by £1 for every £2 of ‘income’ over £240,000 in a tax year, until the allowance drops to £10,000.
  • It is possible to reinstate your full £40,000 allowance by making use of carry forward. The tapering of the annual allowance will not normally apply if income, less personal contributions, is £200,000 or below. A large personal contribution using unused allowance from the previous 3 tax years can bring income below £200,000 and restore the full £40,000 allowance.

Are you approaching retirement?

  • Those looking to retire and drawdown on their pension may want to consider boosting their pension pot before April, potentially sweeping up the full £40,000 annual allowance for this year, plus any unused allowance from the previous three years.
  • When withdrawing taxable income from a personal pension at retirement, the Money Purchase Annual Allowance (MPAA) can be triggered. This will result in pension contributions to a personal pension being reduced to £4,000 a year – with no carry forward.
  • So, of you were considering making further pension contributions after drawing on your pension, it might be worth considering other ways of meeting your income needs that do not restrict future pension saving. Could other savings/investments be used, for example?

Are you a business owner? Consider taking profits as a pension contribution

  • For many directors, taking significant profits as pension contributions could be the most efficient way of paying themselves and cutting their overall tax bill.
  • This will boost your pension fund for retirement but if you are also over age 55 you have unrestricted access to your pension savings, should this be required (although this might come at the price of lower pension savings going forward).
  • There is no national insurance (NI) payable on either dividends or pension contributions. Dividends are paid from profits after corporation tax and will also be taxable income for the director.
  • Employer pension contributions made in the current financial year will get tax relief at 19%, reducing the company’s corporation tax liability.

ISA allowances – Have you used them?

  • You can invest up to £20,000 in the current tax year 2020/21 into a cash or investment based ISA.
  • ISAs are not subject to income tax or capital gains tax (CGT) and, for those who hold all their savings in this wrapper, it is 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. Savings delayed until after 6 April 2021 will count against next year’s allowance

Recover your personal allowance and child benefit payments

  • Pension contributions reduce an individual’s taxable income. In turn, this can have a positive effect on both the personal allowance and child benefit for higher earners resulting in a lower tax bill.
  • An individual pension contribution that reduces income to below £100,000 will restore your full tax-free personal allowance (currently £12,500). The effective rate of tax relief on the contribution could be as much as 60%.
  • Child Benefit is clawed back by a tax charge if the highest earning individual in the household has an income of more than £50,000 and is cancelled altogether once their income exceeds £60,000. A pension contribution will reduce income and reverse the tax charge, wiping it out altogether once income falls below £50,000.

Investments and using your CGT annual allowance

  • If you need to supplement your income tax-efficiently you could withdraw funds from an investment portfolio and not pay tax by keeping any gains realised within your annual Capital Gains Tax (CGT) exemption, currently £12,300.
  • Even if cash is not needed, taking profits within the Capital Gains Tax allowance and re-investing this into an ISA (known as a bed and ISA transfer) will be beneficial. This will make your investments more tax-efficient, helping to reduce any tax that could be applicable in the future.
  • If there is tax to pay on gains at the higher 20% rate, again a pension contribution could be enough to reduce this rate to the basic rate of 10%.

Make use of your annual gift exemptions to lower your Inheritance tax (IHT) position

  • For those individuals that may find their estate is liable to IHT in the event of death, there are various ways to help reduce or mitigate the issue completely. Some of the planning can be complex, however, you can make simple adjustments by making use of the annual gift exemptions.
  • For example, we have an annual exemption, which allows you to gift up to £3,000 in total per tax year. We also have the Small Gift exemption allowing you to give up to £250 per person, per year. In addition to this, we can make gifts in respect of marriage. We can gift up to £5,000, to children, up to £2,500 to grandchildren and up to £1,000 to other beneficiaries in respect of marriage. 


Effective tax planning should be considered throughout the year and we would suggest it is done as early as possible in the tax year. However, we appreciate that for some people, not all financial information is known until closer to the end of tax year to be able to make tax planning actions. In any circumstance, we are here to provide you with accurate and appropriate tax planning advice for your individual needs.

For a more detailed and comprehensive overview of tax planning strategies, please download our Tax Planning Guide here.

We look forward to speaking with you throughout 2021, and should you wish to contact us regarding your financial matters, we will be delighted to speak with you.

Ricky Clark
Financial Planning Consultant

Henderson Loggie Financial Planning