The new tax year inevitably brings budgetary changes which affect various allowances, summarised below. Many of our clients are eager to take advantage of their tax efficient allowances through pensions and ISAs. At the end of the tax year there is always a flurry of late applications, however it is always better to plan early to ensure you make the most of your allowances each tax year.
Individual Savings Accounts (ISAs)
ISAs remain a tax efficient means of saving, whether via a regular monthly contribution or an annual lump sum. The overall personal limit for an ISA for 2013/14 is £11,520. If you are only investing in a cash ISA, the limit is £5,760, i.e. half the total allowance. Remember:
If you don’t use your ISA allowance for this tax year then it is lost – it can’t be ‘carried forward’ to the next tax year.
You pay no tax on capital gains within an ISA nor on any income generated by it.
You don’t need to declare your ISAs on your tax return, making this simpler to complete.
If you don’t have the full amount to invest straight away you could instead make regular monthly savings into an ISA.
You should consider making use of your ISA allowances as it is one of the most efficient ways of building up a relatively large amount of tax free savings over the long term. There is a diverse range of funds available within Stocks & Shares ISAs suitable for even low risk investors.
Consolidate your ISAs
If you have Stocks & Shares ISAs in lots of different places it can be difficult to keep track and monitor the overall performance and funds held. You may wish to use the opportunity while reviewing your tax allowances to consider bringing these investments into one place.
Pensions news and tax incentives
There have been several new developments affecting both State Pensions and private pension provision.
New State Pension arrangements
The UK still has one of the most complex systems of pension provision in the world. The Government has recently introduced new measures which are intended to simplify and make fairer State Pension provision over the next few decades. Gaeia produced a synopsis here [blog link], and for more detailed information about how these changes may affect you, visit https://www.gov.uk/changes-state-pension.
The State Pension is not enough
The UK State Pension alone, whether the current or new scheme, does not provide a sufficient income on which to live. It has never been more important to start saving early towards your retirement. A pension remains one of the most tax effective ways of planning for your retirement. For Basic Rate tax payers, for every £100 paid into a pension, the net cost to you is £80 i.e. £20 tax relief. For higher rate tax payers, the tax advantages are even greater, up to a generous 45% tax relief If you have not paid the maximum tax relievable contribution into a pension in recent years, you may carry forward up to 3 years unused Annual Allowance. You can save up to £50,000 per year or 100% of your earnings if less, in order to qualify for tax relief.
Contact Gaeia for advice in this complex area on 0161 233 4550, Gaeia.com.
Also read our Gaeia’s commentary and views on the 2013 Budget here.
Note on Stocks & Shares ISA investments: These investments are intended for the medium to long term, and if transferred or cashed in in the early years, the value may be less than you have paid in. The value of your investments and any returns will depend upon the performance of the underlying investments selected. The value of these investments can fall as well as rise and past performance is not a guide to the returns you may receive in the future.