Spring Statement – March 2022
The Spring statement raised many questions about the Chancellor’s post covid-plans, with the Chancellor facing calls to tackle the UK’s cost of living crisis. With inflation on the rise, increases in energy prices and events in Ukraine overshadowing the uncertainty of the UK economy, there was growing pressure for the Chancellor to deliver something similar to a mini-Budget.
The Chancellor announced the publishing of a ‘tax plan’ that will ensure the Government takes a ‘’principled approach to cutting taxes’’. The Government anticipates that this will help families with the cost of living, support growth in the economy and ensure the proceeds of growth are shared fairly.
Here are the key tax highlights of the Spring Statement:
- Fuel duty will be cut by 5p per litre until March 2023, covering both petrol and diesel.
- For the next 5 years, there will be no VAT applied to energy saving insultation.
- The national insurance threshold will increase a little over £2,500 from July 2022. Individuals can earn £12,570 a year without paying income tax or national insurance.
- The basic rate of income tax will be cut from 20% to 19% from 6 April 2024.
- The Employment Allowance will increase from £4,000 to £5,000 from April 2022.
End of the tax year
With the 2021/22 tax year ending on 5 April 2022, you may wish to review your tax position to help you identify any potential tax savings. Here are some key points:
- The tax rate on dividends over the £2,000 tax free dividend allowance is increasing by 1.25% from 6 April 2022. If you take dividends out of your company, consider taking a slightly higher amount before the end of the tax year as it may provide you with some tax savings.
- The annual ISA subscription for 2021/22 is £20,000. Consider making a tax-free investment through National Savings or ISAs. Junior ISAs are available for children under the age of 18, the limit for 2021/22 is £9,000. A Lifetime ISA (LISA) can also be opened by anyone between the ages 18 to 39 to purchase their first home or save for retirement. You can save up to £4,000 each tax year and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per tax year.
- Savings allowances (£1,000 per year for basic rate taxpayers and £500 for higher rate taxpayers) and the dividend allowance of £2,000 mean that income up to these thresholds are tax free. Review your income with your spouse to ensure the allowances are used efficiently.
- Claim tax relief on gifts you make to charity as a higher rate or additional rate taxpayer. As a married couple, you should ensure that any charitable donations are made by the higher earning spouse as this will increase the level of income tax relief.
- Tax efficient investments such as Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) are available to provide income tax reliefs as well as the opportunity to defer capital gains. These are considered higher risk investments and you should take advice from an Independent Financial Advisor before considering them.
- The capital gains tax (CGT) annual exemption is £12,300 for 2021/22. Where you have unrealised gains, it may be beneficial to sell assets up to the level of your CGT annual exemption. Assets can be transferred between spouses, tax free, which may enable you to utilise both spouses’ annual exemptions and any capital losses.
- Consider making gifts to your family members or loved ones and these will not be subject to Inheritance Tax (IHT) provided you survive 7 years of making the gifts. There is also an annual gift allowance of £3,000 per tax year and if you have not made any gifts in 2020/21, you can bring forward last year’s allowance and make gifts of up to £6,000 before 5 April 2022. Gifts covered by the gift allowance will not be subject to IHT even if you die within 7 years.
Capital gains tax reporting
From 6 April 2020, if you sold a UK residential property you were required to report the disposal and pay the estimated capital gains tax liability within 30 days of the completion date. From 27 October 2021, the time limit increased to 60 days as announced in the Autumn 2021 budget.
There is no 60-day reporting requirement where no capital gains tax (CGT) arises on the disposal. There is no CGT due if you are selling your main residence, provided the property has been occupied by you throughout your period of ownership.
If you are planning on selling or gifting residential property, please get in touch with us to ascertain whether there is a reporting requirement under the 60-day rule.
You should gather all your information together and let us know of your plans as soon as possible, giving you time to meet the 60-day deadline and set funds aside for your CGT liability.
Following the end of the tax year in which a residential property disposal is made, we will need to report the disposal on your self-assessment tax return which will reflect the final tax position for the year. If any capital losses are realised after the property disposal, these will be taken into account and we will advise you if you had overpaid any CGT during the tax year.
Self-Assessment Tax Return for the year ended 5 April 2022 (2021/22)
We shall be writing to all of our clients after 5 April 2022 to request their tax return information for 2021/22. Please gather all your information together and let us have the details as soon as possible, ideally by 31 July 2022. This will enable us to prepare your tax return early and advise you of your overall tax position, enabling you to put finds aside in good time.
Upcoming important dates for self-assessment:
- 31 July 2022: second payment on account due for 2021/22.
- 5 October 2022: register for self-assessment. If you have never submitted a self-assessment tax return before, you must register by 5 October 2022 in order to submit a return for the 2021/22 tax year.
- 31 October 2022 – deadline for filing a paper tax return.
- 30 December 2022 – opt into PAYE. If you file your tax return online and have earnings taxed under PAYE, you can opt to have overdue tax collected via your tax code throughout the following tax year. The tax liability must be less than £3,000.
- 31 January 2023 – deadline for filing an online tax return.