While most of us are aware of the end of the tax year deadline on April 5th, the actual date often seems to loom swiftly. We may or may not be well prepared – but it makes sense to check whether we can do more to improve our long-term financial outcome.
As well as being an opportune nudge to get our general finances in better shape, we can focus on specific areas to ensure we make the most of our allowances and are as efficient as possible with our investments.
ISA and JISA
ISAs are naturally a great way to build up a tax-free pot which can grow considerably over the long term. A family can also combine allowances to produce quite a startling impact compared to leaving their money outside of a tax wrapper.
For example, see the difference you can make in even 10 years by combining the yearly ISA allowances of two adults (2 x £20,000) with the allowances of two Junior ISAs (2 x £9,000). Other permutations work well, too.
It is important to note, that merely funding an ISA is not enough – you should choose the right kind of ISA. A cash ISA is rarely the most optimal way to shelter investments from the tax man. Inflation and the impact of not being invested can be hugely damaging, so find out why you should avoid the mistake an unusually high percentage of investors make each year.
The annual amount you can invest in a pension is £40,000, but you may be able to boost your pension pot further. What’s known as ‘carry forward’ lets you make use of any annual allowance you haven’t used during the three previous tax years.
(Please note, you can only use carry forward provided you were a member of a registered pension scheme during the relevant time period + you must have a taxable income each year of at least the same amount you plan to contribute.)
You should also bear in mind the pension lifetime allowance (LTA), the total amount (now £1,073, 100) you can accumulate in a pension before an additional tax charge applies. Yet you may be able to apply for Fixed Protection 2016 – giving you a personal lifetime allowance figure of £1,250,000 – if you haven’t added to your pension savings since 5 April 2016.
If you are planning large pension contributions this article may help you to better understand how to manage the LTA to your advantage. You can also gain access to our lifetime allowance calculator and watch a useful webinar for more details around sound planning considerations to help you aim for a better financial outcome.
General investment account
If you have used up your tax-free allowances you can still be clever about how you manage other assets, perhaps held in a general investment account (GIA). Many people can accumulate up to £100,000 in a GIA before any tax is due.
Each year, individuals can benefit from a capital gains tax allowance of £12,300, a dividend allowance of £2,000 and interest allowance of £1,000 – these should be used each year or you will forgo the benefits.
Take the right action now
Where feasible, you should make the most of your tax-free allowances each year. Some of these tax wrapper contributions will be relatively straightforward.
Sometimes, however, it is more complicated to maximise the relationship between different accounts and holdings. In these instances, please get in touch with one of our expert advisers who will be happy to help you devise a tailored strategy so you can get the best outcome for all your investments.
Please note, the value of your investments can go down as well as up.