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ISA and Pension Tips From the Experts

Aside from maximising your pension and ISA contributions, we ask the experts to pick out a handful of things investors should consider before the tax year ends

David Brenchley 12 March, 2019 | 1:50PM

Calculator, tax planning, last minute tax tips, ISA season, ISAs, pensions, Bed & ISA, carry forward, gifting

How can savers and investors make the most of their ISA allowance? Read our special report to find out

With the end of the tax year looming, consumers have plenty to consider between now and Friday April 5.

While for most ordinary retail investors last-minute planning will consist of making sure they have maximised their pension and ISA allowances, there is a raft of other measures to be considered for those both lower down and higher up the earnings ladder.

Below, we ask some experts for their top tips that might fly under the radar but are just as important to think about.

Bed & ISA

For investors who do not have any spare cash to invest into their ISA but hold shares or funds outside of a tax-efficient wrapper and haven’t used their annual ISA allowance, a process called Bed & ISA is recommended.

It’s a straightforward process, which involves selling an existing investment held outside an ISA, moving the proceeds into an ISA and immediately buying the investments back.

There are a few things to consider. First, the amount you can move into the ISA wrapper cannot exceed the annual ISA limit, which is £20,000 for 2018/19.

Second, in order to make it as tax-efficient a process as possible, Jason Hollands, managing director at Tilney, suggests ensuring any gains crystallised on the sale of the existing investments do not exceed £11,700 and unnecessarily trigger a CGT liability.

It should be a simple and painless process. Most platforms offer a Bed & ISA service, so investors only need fill in one form indicating how much they wish to sell and their platform will handle the practicalities.

One downside is that you’ll be out of the market in between the two trades, so you may have to buy back at a higher price. However, once your unwrapped investments are inside the ISA, they will be sheltered from all future income, dividend and capital gains tax they would otherwise have been liable for.

Despite most platforms foregoing the transaction charges, you may incur both stamp duty and the levy imposed by the Panel for Takeovers and Mergers, plus CGT if the amount exceeds your allowance.

One final consideration, notes Sarah Coles, personal finance analyst at Hargreaves Lansdown, is to leave yourself long enough for the process to go through before the tax year ends. Check with your investment platform, though, as the deadlines differ.

Carry Forward

While unused ISA allowances get lost once the tax year ends, unused pension allowances from previous years can be utilised via carry forward. This process allows those who have maximised the current year’s allowance to look back over the previous three tax years and use anything you hadn’t previously.

“For those needing to play catch-up with pension savings, perhaps because their financial circumstances have improved, maximising pensions including using carry forward might be their top-priority in the coming weeks,” suggests Hollands.

For higher earners, the current tax year is the last chance to carry forward from a year that did not have a tapered annual allowance, notes Angela Lloyd-Read, wealth advisor at Canaccord Genuity Wealth Management.

The 2015/16 tax year was the final year those earning over £150,000 could invest up to £40,000 into a pension, with some having seen their annual allowance fall to as little as £10,000 subsequently.

For instance, if for the past five years you’ve been earning in excess of £210,000, your annual allowance for 2015/16 would have been £40,000 and in the subsequent three years would have been £10,000.

Had you not contributed to a pension at all in that time but have built up a cash balance, using carry forward in the current tax year would mean you could contribute up to £70,000 to a pension. If you leave it until the 2019/20 tax year, that figure drops to £40,000.

Therefore, for those earning over the previously mentioned £150,000 threshold, it’s important to check whether you used all of your 2015/16 allowance and, if not, carry forward before April 6.

Later in the week we look at options for those who have used up their pension and ISA allowances and ways to mitigate inheritance tax liabilities.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk

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