2nd April 2013
You have just a couple of days to go until the end of the 2012/13 tax year, and if you have yet to make full use of your tax free allowances, you really have to get moving. Consumer journalist Jill Insley reports.
So what are your options when it comes to protecting your money from tax, and which companies are still open for business?
Individual Savings Accounts
Allowance in the current tax year: £11,280 (£3,600 for a junior Isa) Isas are the most popular last minute purchase. Adrian Lowcock, senior investment manager at Hargreaves Lansdown sys: “In the last two tax years, 14 per of all new Isas opened on the Hargreaves Lansdown platform were opened in the last week.”
Income from an Isa does not have to be declared on a tax return and will not count towards any personal allowances. Investments in cash or bonds pay out gross income to investors, while dividend from equities are paid after a 10 per cent tax credit has been deducted. All capital gains are tax free.
To open an account you will need cleared funds in your bank account and a debit card so you can carry out the transaction online: there is no point in risking postal applications at this late stage. You may also want to inform your bank that you are moving a large amount of money out of your account for investment purposes, just in case they suspect fraud and stop the transaction.
The money must be paid from a UK bank account in the name of the applicant, or a parent or guardian in the case of a junior Isa. You will not be allowed to invest using a credit card. You should also have your National Insurance number to hand.
Independent ﬁnancial adviser Best Invest says: “The process of opening an [online] Isa is very quick – we estimate three minutes – and you will receive instant feedback on whether your application has been accepted.”
Several ﬁrms are extending their opening hours on 5 April to enable last minute investors to use their annual Isa allowances. Best Invest will accept online applications until 12 midnight (www.bestinvest.co.uk/select).
Hargreaves Lansdown will accept online applications until 23.45 (http://www.hl.co.uk/), and until 23.55 for telephone applications (0117 900 9000).
Chelsea Financial Services is open to online applications (www.chelseafs.co.uk) until 11.30pm, and for telephone applications until 10pm (020 7384 7300).
Venture Capital Trusts
Allowance in the current tax year: £200,000
Venture capital trusts (VCTs) enable individuals to invest in a range of of small, usually higher risk, companies whose shares are not listed on a recognised stock exchange. Investors buy shares in the trusts, subject to relief at a rate of 30 per cent of the amount subscribed,provided shares are held for ﬁve years. However the relief you can claim must not exceed the tax you have paid in the year when you subscribed to the VCT shares.
Find out more about the tax beneﬁts available, including capital gains tax relief on disposal of shares and tax free dividends, on the HMRC website (http://www.hmrc.gov.uk/guidance/vct.htm).
Make sure the VCT you are interested in still has capacity before you send your application. These investments have a limit to how much money they want to accept from investors, and many will be near capacity if not already full by this stage of the year.
Time is very short indeed for VCT applications – Hargreaves Lansdown, for example, has a deadline of 3 April. VCT are not available online so applications must be posted or hand delivered. If you cannot do the former, make sure to use Royal Mail Special Delivery or a courier service so you know your application will arrive in time. Do not be tempted to use a
free post envelope – it will be slower and could cost you your annual allowance for this tax year.
Find details of current VCT launches plus a free VCT guide on the BestInvest website (www.bestinvest.co.uk)
Allowance in current year: £50,000, subject to your paying tax on that amount of salary
The government is intent on reducing the amount of tax relief on pension contributions to £40,000 in the 2014/15 tax year. But you can currently beneﬁt from relief at your marginal rate on contributions up to £50,000, plus any unused relief in the past three tax years. This means you could invest up to £200,000.
Even non-earners can contribute up to £3,600 a year and get tax relief.
Investors who are contributing to a workplace pension scheme may also receive contributions from their employer. Total contributions are subject to a lifetime maximum of £1.5m, due to fall to £1.25m in April 2014.
Up to 25 per cent of the pension fund can be taken as tax free cash once you reach the age of 55. The remainder must be used to generate an income, either through a process called income drawdown or through buying an annuity. Pension income is liable to income tax, but this is often at a lower rate than the amount the investor would have paid while working (because of the lower amount of income involved).
Pensions are a much longer term decision than Isas (you cannot draw on your investment until you reach the age of 55 at the earliest), so fewer IFAs and investment ﬁrms will offer a last minute service. However BestInvest will accept self investment personal pension applications until 12 midnight on 5 April.
Hargreaves Lansdown will accept SIPP applications until midnight, but says they take about 10 minutes to complete, so not to leave the process any later than 11.45pm ( http://www.hl.co.uk/
Enterprise Investment Schemes
Allowance in current tax year: £1m
An enterprise investment scheme (EIS) involves putting all the investor’s money into a single ﬂedgling business. The high risk this involves is reﬂected in the extremely generous tax breaks available: a 30 per cent income tax refund on the money you invest, provided you have paid at least that amount of tax in the year you invest; and tax free growth, provided you hold the shares for at least three years.
You can also defer an existing CGT charge on proﬁts from other investments by investing the proﬁts in an EIS.
However independent ﬁnancial adviser Chelsea Financial Services warns that it is unwise to buy an EIS purely for the upfront tax relief and to then try to sell immediately after the minimum three year holding period. It points out there is no secondary market for EIS shares, meaning your capital can only be returned once the underlying assets have been
sold. They are therefore very illiquid and not suitable for people with short investment time horizons.
For those still wanting to take advantage of this tax year’s allowance, Chelsea lists the available schemes on its website (http://www.chelseafs.co.uk/eis/currentoffers/). Call 020 7384 7300 to request brochures which can be emailed to you.
Again you will have to act with lightening speed as these investments cannot be made online, and some schemes require investment via a cheque for which the last date is 3 April. However Chelsea will accept applications for those which will take a BACS payment up to and including 4 April.