The end of the tax year is only six short weeks away, which means it’s time to start doing those financial jobs we all mean to do during the year but always get left to the last minute.
So what should you do before the end of the tax year?
1. Use ISA Allowances
The perennial favourite idea at the end of the tax year, but it’s still a good one.
The ISA allowance for the 2011/12 tax year is £10,680 of which £5,340 can be held in a Cash ISA, with the remainder invested in a Stocks and Shares ISA. If you don’t want to save into a Cash ISA the whole allowance can be used in a Stocks and Shares ISA, which of course. involve a degree of investment risk giving a risk of capital loss.
We all know that ISAs are a tax efficient way of saving and investing and whilst it might seem a bit of a pain moving relatively small amounts into ISAs each year, the cumulative benefits over the years can be significant.
We see too many people holding their savings and investments inefficiently from a taxation point of view, the message is clear, use your ISA allowance each year; if you don’t, you’ll lose it.
2. Don’t forget the Junior ISA
Children aged 15 and under can’t have an ‘adult’ ISA, however if they do not already have a Child Trust Fund (CTF) they can have a Junior ISA.
Parents of children under the age of 16 have to open the Junior ISA on behalf of their child. Children aged between 16 and 18 can open one themselves and once they reach the age of 18 the ISA automatically converts into an ‘adult’ ISA.
Junior ISAs work in a very similar way to the ‘adult’ version, although the annual contribution limit is £3,600.
Again, this is a tax free allowance which you should consider using if you are saving on behalf of your child, perhaps to pay university fees, save for a wedding or to help them with a deposit when they become a first time buyer.
3. Pensions: Carry Forward
When the government reduced the Annual Allowance (the amount you can pay into a pension and receive tax relief on) from £255,000 to £50,000 it also introduced Carry Forward to allow people to use previous year’s unused allowances.
In short, the current year’s allowance is used first and then you can go back and ‘mop up’ three previous year’s unused allowances; providing you have sufficient earnings in the current tax year to justify the level of contributions.
You therefore have until the end of this tax year to use any unused allowance from the 2008/09 tax year.
Sounds complicated? It can be. The easy answer is if you want to make a pension contribution of more than £50,000 then speak to our advisers, they will be able to help confirm whether you are eligible for Carry Forward and explain more about how it worlks.
Remember though, Carry Forward is like ISA allowances, use it or lose it.
4. Higher rate tax relief on pensions
The topic of higher rate tax relief for pensions is subject to considerable speculation at the moment in the press, and whilst not strictly linked to the end of the tax year is something that should be considered in your planning.
The press speculation could be simply that, something to fill the column inches. In these times of austerity and with a coalition government keen to raise the personal allowance to at least £10,000, it is easy to see how the abolition of higher rate tax relief could be part of the budget due on 21st March.
We want to do nothing to add to the speculation and like most years the scare stories could turn out to be completely untrue. However, be aware that higher rate tax relief could be a casualty in the budget and if you are planning on making a pension contribution it might be prudent to do so sooner rather than later.
5. Tax free lump sums from pensions
Again, another topic not linked to the end of the tax year and also subject to press speculation.
It is possible that in the budget the government could move to limit the amount of tax free lump sum available from a pension.
In our view this is less likely than a move to remove higher rate tax relief as it would be seen as a retrospective tax on those people who have saved hard for their retirement, whereas the removal of higher rate tax relief would only affect future pension contributions.
If you are planning on taking your tax free lump sum soon, you might want to bring forward the date you take your pension, just to be on the safe side.
Of course this will not be necessary if no changes are made in the budget, time perhaps to get the crystal ball out!
6. Use your Capital Gains Tax allowance
The Capital Gains Tax (CGT) allowance, of £10,600 in the 2011/12 tax year is often forgotten.
Again, this is another allowance that is lost if it is not used in the current tax year, therefore if you are planning on selling an asset, perhaps a buy to let property or some shares, try and arrange completion before the end of the tax year so you can use this year’s allowances.
7. Make pension contributions before 5th April if you plan to use Flexible Drawdown in the next tax year
Flexible Drawdown was introduced last April and allows those people who qualify to take greater levels of income than the Capped Drawdown rules allow.
However, Flexible Drawdown cannot be taken in the same tax year that a pension contribution is made.
Therefore if you are planning on using Flexible Drawdown in the 2012/13 tax year you have until April 5th to make any additional contributions to your pension.
Act now, don’t delay
These are just a few quick ideas to help you plan your financial affairs in a more tax efficient way, although the tax year end will soon be with us, there is still time for some last minute planning.
Our advisers are here to help and guide you through the things you should consider at the end of the tax year, if you have any questions or would like advice do not hesitate to call an adviser today on 0115 933 8433, alternatively complete and online enquiry form or email email@example.com