The end of the tax year is nearly upon us, but there is still just enough time left to take care of those last minute jobs which will help to make your savings, investments and pensions work harder for you.
1. ISA contributions
We say this every year, but if you don’t use your annual ISA (Individual Savings Account) allowance you lose it.
In the current tax year you can pay up to £11,280 into an ISA, of which a maximum of £5,640 can be paid into a Cash ISA.
If you have savings in deposit accounts consider moving them into Cash ISAs. By doing so you will ring-fence the interest you receive from tax; just be careful to check that the interest rate on the Cash ISA is competitive to what you are currently getting.
Whilst the tax saving from Cash ISAs might not be great at the moment, due to the low rates of interest on all types of savings accounts, by paying the maximum into ISAs each year you will be building up a tax free pot of money, which will become more beneficial when interest rates start to rise, hopefully in the not too distant future!
2. Don’t forget Junior ISAs
If you have children or grandchildren, they can also join in the ISA fun and pay up to £3,600 each year into a Junior ISA; you can also pay in on their behalf.
A Junior ISA can be invested in the same ways as an ‘adult’ ISA, with a choice between saving in a Junior Cash ISA and investing in funds.
Most children are not tax payers, which makes the tax saving on most Junior ISAs minimal. But when the child gets to 18, the Junior ISA converts into an ‘adult ISA’ and the tax benefits will really start to be felt when your child or grandchild starts to work and therefore pay tax.
3. Move money from OEICs and Unit Trusts
Many people who make a lump sum investment pay the maximum possible into an ISA and then put the remainder in OEICs or Unit Trusts, which work in a very similar way to ISAs, but are not as tax-efficient.
For example, a typical husband and wife investing £50,000 in the current tax year, could pay £11,280 each into stocks & shares ISAs and the balance of £27,440 into OIECs or Unit Trusts, using the same investment strategy as the ISA.
However, as the OEIC or Unit Trust isn’t as tax-efficient, investor should both move the maximum possible amount into ISAs as soon as the new tax year starts. This is relatively easy to do, shouldn’t carry any cost and will improve the tax-efficiency, and therefore the overall return, of the investments.
Many people forget to make this switch, if you’ve not used your ISA allowance in the current tax year and have money invested elsewhere, consider whether you should move it into ISAs and start paying less tax.
4. Pension contributions
There are two opportunities to take advantage of before the 5th April.
Firstly the highest rate of tax relief currently available on pension contributions is 50%, from the start of the 2013/14 tax year this will drop to 45%, in line with the changes to income tax. Therefore, if you pay the highest rate of tax and you plan to make large pension contributions, you should consider doing so before the 5th April 2013.
Secondly, the 2012/13 tax year is the penultimate year in which you can pay up to £50,000 into your pension and receive tax relief on the whole amount. From the 2014/15 tax year the maximum contribution you will be able to make to qualify for tax relief will fall to £40,000.
If you are planning on making large pension contributions then the next two years will provide you with greater scope than in subsequent years.
5. Prepare for Flexible Drawdown next year
If you plan to use Flexible Drawdown in the next tax year, you need to make your final pension contributions before 5th April.
Flexible Drawdown allows people over the age of 55, who satisfy certain criteria, the option to take larger amounts of income from their pension than are available from either Income Drawdown or an Annuity.
You can read more about this in our recent blog, ‘Considering Flexible Drawdown? Three things to do before the end of the tax year’, click here to read this blog.
6. Use your Capital Gains Tax allowance
Your Capital Gains Tax (CGT) allowance is another ‘use it or lose it’ allowance.
The CGT allowance allows you to realise up to £10,600 of gain, in other words profit, each year, before you start to pay tax.
If you are thinking about selling investments, perhaps a buy to let property, shares or Unit Trusts, where you have made a profit, try and arrange the sale before the end of the tax year so you can benefit from this year’s CGT allowance.
The end of the tax year is nearly upon us and because of Easter is just a few days before the 5th of April, you have even less time to make any necessary arrangements.