Six tax tactics to deploy before financial year-end

With the end of the tax year a fortnight away, it may seem too late to think about making your finances more tax efficient. But there’s still time to employ some effective tax tactics, says Jason Hollands, managing director at investing platform Bestinvest

With a five-year freeze to many allowances announced at the last Spring Budget, it’s important that households use their tax exemptions efficiently and comprehensively.

Here we look at six steps you can still implement before 5 April which will help to reduce tax liability and protect wealth.

1.           Use your annual pensions allowances

Jason Hollands, managing director at investing platform Bestinvest, says: ‘Nothing beats pensions when it comes to tax perks, with contributions attracting tax relief at your marginal income tax rate. This means a 40% income taxpayer can get £10,000 of pension at a net cost of just £6,000, once the tax reliefs are factored in.

‘If you have not hit your annual £40,000 pension contribution allowance, then consider using any spare funds to take advantage of the generous tax reliefs on offer. But keep an eye on your lifetime allowance too.’

You can also carry forward unused annual allowances from the last three tax years, to add an even larger lump sum into your pot – although the total contribution over the tax year is still subject to the limit that it cannot exceed your annual gross earnings.

Currently you are about to lose the option of using unused allowance from the tax year 2018-19. It may be that you maxed out the allowances in the following two tax years – so is it worth using this allowance before it disappears for good?

2.           Use – or lose – your Individual Savings Account (ISA) allowances

Up to £20,000 per adult can be subscribed to an ISA before midnight on 5 April, with all returns generated within it sheltered from future taxation. Hollands stresses: ‘If you are unsure of where to invest, you can fund your ISA initially with cash between now and then to use up any of the allowance that remains. Investments do not have to be purchased before then.’

Payments into a Lifetime ISA (LISA) – available to those under 40 – come out of your overall ISA allowance. But the generous government top-up means that for some savers – like those building up a deposit to purchase their first home – using up the annual £4,000 limit may well be worthwhile.

3.           Start saving for children

‘Early saving at or soon after the birth of a child is a powerful tool that can generate big pots by the time they reach adulthood,’ says Hollands. The Junior ISA allowance is a generous £9,000 a year. Moreover, even those who are not paying tax are entitled to tax relief on pension contributions of £2,880 a year (which the top-up takes to £3,600), the so-called ‘basic amount’. This means a pension with tax benefits can be opened for a child of any age – or indeed a non-earning spouse.

4.           Be strategic with capital gains

Regular disposals of investments each year to take advantage of the annual capital gains tax (CGT) exemption can protect you against a hefty future CGT bill when you come to dispose of an investment, the profits on which might take you over the annual £12,300 allowance.

This tactic can also be used to transfer investments that are held outside an ISA into one by the process called ‘Bed and ISA’.  But take action quickly as funds will need to be sold down to cash and moved into the ISA before 5 April and this can take a few days to clear.

Equally it might be beneficial to crystallise some losses by making a disposal of poorly performing assets to bring the year’s overall capital gains down below the annual allowance.

If you are married or in a civil partnership, then inter-spousal transfers can be used to make sure both partners’ allowances are used optimally. When shares, for instance, are transferred from one spouse to another, it is assumed they are given at cost value and therefore do not trigger a tax liability. The CGT allowance for that year of the spouse who receives the transfer then comes into play.

5.           Consider other tax-incentivised investments

Subscriptions to venture capital trust (VCT) new share issues offer 30% income tax relief on the amount invested (capped at £200,000), which can be offset against your income tax liability during the tax year of purchase. To keep the relief, you must then hold the shares for at least five years. Any dividends or capital growth on the investment are also tax free.

Many higher earners who hit their pension allowances have turned to VCTs, which also often offer high tax-free dividends. Their popularity is likely to grow with personal and pension allowances frozen until April 2026, plus dividend tax increases coming in the new tax year.

Hollands says that ‘it is important to understand that VCTs are high risk investments which target small, early-stage and illiquid companies. While VCTs are not suitable for most investors they can be useful for high earners with substantial portfolios who are already maximising use of ISAs and pensions and who understand the risks’.

Many VCT offers have already closed for this tax year and with capacity in each offer strictly limited, those interest in VCT investing should not delay. For details on which VCT offers are still available visit

6.           Gifts to reduce inheritance tax liability

There are a number of tax-free financial gifts that you can make each year. These leave your estate immediately so there will not be any inheritance tax to pay. These include:

  • gifts to a civil partner, husband or wife (if their permanent home is in the UK);
  • up to £3,000 in gifts each tax year. This can be carried over for one year giving a total of £6,000;
  • an unlimited number of gifts up to £250 per person; and
  • wedding gifts to a child of up to £5,000, to a grandchild or great-grandchild of up to £2,500 or to anybody else of up to £1,000.

The gifting rule noted above allows married couples and civil partners to transfer assets such as cash and investments between them, without giving rise to any tax liabilities, creating numerous opportunities to maximise the use of two sets of tax allowances.