Five steps to take right now - before it's too late for this tax year
It's the last day of the tax year. And while we've all been warned not to leave things until the last minute for years, there's every chance that we've let everything from ISAs to pensions slide again this tax year. The good news is that there are still 5 steps we can take right now, so we don't waste a year's worth of allowances.
1. Contribute to your pension
Every year you have an annual allowance of what you can contribute to your pension tax-efficiently. This year it's £40,000. And while that might seem like an awful lot, Patrick Connolly, a Certified Financial Planner with Chase de Vere, points out that this doesn't mean you can put off extra contributions.
First, there's the risk that the government will reduce the maximum you can pay into a pension in future years - and some people may have limits as low at £10,000 a year - so you need to act while you can. If you are just at the threshold of paying higher rate tax, or losing child benefit, you can also use your contributions to bring down your income.
If you have a large pension, it's even more important to act now. From 6 April, the pension Lifetime Allowance will be reduced from £1.25 million to £1 million. This means that those with larger pension pots could face an additional tax penalty. It might be possible to reduce or avoid any tax bill by applying for Fixed Protection 2016 or Individual Protection 2016. However, both of these will be lost if you make any pension contributions after 6 April this year. So if you want to contribute more - this is your last chance.
2. Put money in an ISA
As Connolly points out: "The annual ISA allowance for the current tax year is £15,240. Any amounts which are unused are then lost and so it could make sense to top up your ISA investments now."
However, he points out that you need to be certain you are getting enough interest on any cash ISAs to make them worthwhile. He says: "From the beginning of the next tax year, the government is bringing in a tax-free Personal Savings Allowance for savings income and interest. A basic rate taxpayer will be able to receive up to £1,000 a year, and a higher rate taxpayer up to £500, each year with no tax liability. Alongside this, banks, building societies and NS&I will pay interest with no tax deducted. This new allowance could mean that cash ISAs are no longer the default choice for some people's cash savings, especially if the interest rates they offer are uncompetitive."
3. Consider an investment ISA
You may be able to open an online ISA with a broker at any time up to midnight on the last night of the tax year, so don't write this approach off.
It's difficult to choose investments in a hurry, at the last minute, but there are a couple of approaches that might work. If you already have money invested in funds you might consider topping these up.
Alternatively, you can deposit the money as cash in a broker's ISA. This will protect your allowance, and then you can take your time over the coming weeks and months to select funds or shares to invest in - or one of the ready-made portfolios offered by the broker you have chosen.
4. Consider capital gains
Anyone who has considerable investments outside of an ISA, should at least consider capital gains. You have an allowance of £11,100 that you can take each year before tax is due - but this cannot be carried forward. If you are set to make significant capital gains in a few years' time, it may make sense to take some now, and use this year's allowance before you lose it.
5. Take advantage of inheritance tax gifts
Connolly says: "Consider making use of the inheritance tax gift allowances in the current and next tax year." Each year you can give away £3,000, which is considered to be out of your estate immediately. This can be carried forward by one year, but that's your limit. You can also make gifts of up to £250 to as many people as you like in one year - and it's considered to be out of your estate for tax purposes immediately. If you have a large estate, it's worth considering this every year.
