1st April 2014
Hargreaves Lansdown has issued a six point check list for the end of the tax year which we have included below.
You can invest up to £11,520 per tax year into an ISA of which £5,760 can be invested in a Cash ISA. If you don’t invest by the end of the tax year (midnight on the 5th April) you lose this year’s allowance.
If you are nervous about stock markets you should still use your ISA allowance and make your contribution to secure your allowance. Hold it as cash and choose where to invest later.
A husband and wife can shelter £23,040 into ISA in this tax year and a further £23,760 on the 6th April plus a further £6,240 from 1st July when the limits are increased to £15,000.
2. Junior ISA
You can invest up to £3,720 per tax year into the new Junior ISA, the long term replacement for the Child Trust Fund (CTF). Once opened, any friend or family can contribute and Junior ISA is an ideal way for grandparents to give their grandchildren a good start in life. Children born between 1st September 2002 and 2nd January 2011 who hold CTFs are not eligible for Junior ISA but can top up their CTF accounts to £3,720. The Junior ISA and CTF allowances rises to £3,840 on 6th April and then to £4,000 from 1st July 2014.
Pensions are one of the most tax efficient ways to save. Each year, most UK residents under the age of 75 are eligible to invest as much as they earn into a private pension to save for their retirement.
For every £1,000 you contribute to a pension, the government adds £250 basic rate tax relief. If you are a higher rate tax payer you can also claim up to a further £250 back via your tax return. This means a £1,000 contribution could cost you as little as £600 so long as you have paid the relative amount in higher rate tax.
You can normally pay up to 100% of your earnings into SIPP or up to £3,600 a year if you are a non-earner (£2,800 before tax relief is added). Tax relief is normally available up to the annual allowance of £50,000 per annum. The allowance reduces from £50,000 to £40,000 next tax year and lifetime allowance to £1.25 million also from April 2014.
As with ISAs, if you are nervous about stock markets you could consider using your SIPP allowance by making your contribution and then holding it as cash and then choose where to invest later.
Carry forward can also be used to mop up unused allowances over the previous 3 years, providing a potential to invest £200,000 in pension per person and gain tax relief providing there is sufficient earnings.
4. Capital Gains Tax
The capital gains tax (CGT) exemption allows you to take profits on certain investments of up to £10,900 a year (2013/13) without paying tax on the profits. Tax above this is paid at either 18% or 28%. The most common investments subject to CGT are shares, unit trusts and buy to let property.
If you are married (or in a civil partnership), you can double up again and both make use of both of your CGT annual exemptions. Investments can be transferred between you and your spouse and then can be cashed in. This means that between a married couple, they can realise up to £21,800 of profits in one tax year.
Furthermore realised losses can create a tax saving opportunity. You can offset the losses you have made on one investment against the profits you have made on another. If you have made losses and haven’t realised any profits this year, register your losses (on your tax return) and carry them forward indefinitely to offset these against profits in the future.
To realise the loss you need to either sell or transfer ownership (to someone other than your spouse) of the investment before the end of the tax year.
5. EIS/ SEIS/ VCT
For sophisticated investors:
VCTs offer up to 30% income tax relief on investments of £200,000. EIS Up to 30% income tax relief on investment of £1 million. SEIS up to 50% income tax relief on investment of £100,000
These are all higher risk investments only suitable for small proportions of a portfolio.
6. Lifetime allowance
The Lifetime allowance, the value of pension benefits you can build maximising tax reliefs, falls from £1.5 million to £1.25 million on the 6th April. High value pensions can be protected against this fall using fixed or individual protection.
Hargreaves Lansdown says March and April are still very much ISA season with more than half of all HL ISAs subscribed in March and April. Twice as many under 44s leave their ISA savings until the last minute compared to the over 65s. The over 65s are also more likely to be early birds, with 23% of their ISA subscriptions being made from in April, from the 6th in the new tax year. December is the least popular month to do your ISA with less than 3% of applications.
Danny Cox, Head of Financial Planning, Hargreaves Lansdown says: “Older, more experienced investors tend to plan further ahead whilst it seems that younger investors are more likely to leave it until the last minute.”