Year End Tax Planning: Pensions, savings and investments

Lubbock Fine, 19 March 2019

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As we approach the end of another tax year on 5 April 2019, it is a good time to make sure that your finances and tax position are structured as efficiently as possible. There may be steps which can be taken now to minimise your tax liability or optimise choices for the future. 

The next in our Year End Tax Planning series looks at pensions, savings and investments.

Throughout this text, the term spouse includes a registered civil partner. We have used the rates and allowances for 2018/19.

Pensions, savings, investments

Pensions provide significant planning opportunities. The annual allowance (AA) – the maximum you can contribute to a pension and still get tax relief – is £40,000 ordinarily although this is reduced to £10,000 for high earners (those with income above £210,000). Exceeding the AA can result in a clawback charge. However, in many circumstances you may have unused AA from the three previous years which can be used in 2018/19, providing the means of making a significant contribution without incurring a charge. Please contact us for advice specific to your circumstances.

Tip: if your income is in excess of £100,000, you may want to minimise potential abatement of your personal allowance (PA). Making personal pension contributions by 5 April can help here, reducing income for PA abatement purposes. For higher earners 2018/19 may also be the last opportunity to utilise significant unused AAs from earlier years, before the tapering to £10,000 was introduced.

The Savings Allowance means a certain amount of savings income, such as bank and building society interest, can be earned tax free. In 2018/19, this is up to £1,000 for basic rate taxpayers; up to £500 for those paying at higher rate; and nil for additional rate taxpayers.

Useful tax relief can be produced by investing through the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCTs), or via Social Investment Tax Relief. EIS and SEIS provide income tax relief (at 30% or 50% respectively) on new equity investment in qualifying unquoted trading companies and can also provide a valuable deferral or exemption of CGT due on other disposals.  

 VCTs invest in shares of unquoted trading companies. Investors here are exempt from tax on dividends and on any capital gains arising from disposal of the shares. Income tax relief at 30% can be available on subscriptions for VCT shares, subject to certain conditions.

ISAs are a popular investment. Savings held within an ISA are free of income tax and capital gains tax. Investment must be made by 5 April 2019 to take advantage of limits for 2018/19. The maximum you can save is £20,000 in 2018/19. It remains at this figure for 2019/20.

Tip: as ISA investment limits cannot be carried into future tax years, check that family members make maximum use of the limits available for this year.

Please do contact us for a review of your individual circumstances.