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Tax Year-End: ISA Allowances

OK they’re apparently “NISAs” following the latest upgrades, but I’m sticking to the old name for now.

This is pretty straight-forward stuff. You must use your ISA allowance in its tax year, or else it is lost. You must be over 16 for a cash ISA, or over 18 for “Stocks and Shares” ISAs (typically unit trusts or similar mutual funds).

The allowances are:

  • 2014-15 (up to)£15,000 each
  • 2015-16:(up to) £15,240 each

From 2014-15, you can invest any proportion into cash or Stocks and Shares – e.g. you can now invest £15,000 into just a cash ISA, or  £15,000 into Stocks and Shares ISA, or anything in between.

A married couple could invest £60,480 across both tax years. Most of the larger ISA providers will facilitate a double payment now – (they just hold next year’s part of the payment for a week or two and the invest it for you on April 6th).

(Junior ISAs apply for younger people, which have lower allowances than for adults – see  earlier posts).

made-it

Made It!

If you leave it to the last minute and are having difficulty with your provider, or you’d like to set up a new ISA account this year, please give me a call. We have last minute facilities with most of the big platforms (Fidelity, Old Mutual, Cofunds etc.) where we can get your application in. And don’t forget we offer an investment advice service – customised portfolios built around your preferences. Our on-going fee for this service is just 0.5% per year.

Tax Year End Planning: Pensions

Higher Rate (50%) Tax Payers: Tax Relief on Pension Contributions could be at risk. 

Recently, there has been much comment regarding the potential alteration to Higher Rate Pension Tax Relief.

To be on the safe side it might be an idea to ensure all top-up pension contributions for this tax year are processed before the next Budget is announced on Wednesday 21st March 2012.

So, if you typically make a year-end top-up contribution to your pension and you are a higher rate taxpayer (gross income over £150k)…………

***** Make Tuesday 20th March 2012 your Tax Year End *****  

 

Carry forward pension rules change – use your 2008/2009 allowance now.
5th April 2012 marks the last chance to pick-up any unused 2008/2009 allowance. If you wish to make aggregate gross  contributions (including employers’) into your pension of more than £50,000 this tax year, then utilise carry forward. Don’t lose the past allowance from  2008/2009 pension annual allowance in your carry forward calculations. 

 

Lifetime Allowance (LTA) and Fixed protection
If you believe your pension may be greater than the new reduced £1.5m LTA value coming April 6, 2012 when you come to take benefits, you should act now. By applying for fixed protection by 5th April 2012 you can retain an LTA of £1.8 million, and protect your pension from future excess tax charges.  Final Salary pensioners would multiply their expected pension figure by 20 and add any cash lump sum in calculating whether they risk breaking the limit. The LTA is not due to be increased for some time, it is rumoured.

 

Kudos for JISAs (Junior Investment Savings Accounts)

Finally! –  a simple, straightforward attractive savings vehicle for children. The new JISA is the junior version of an ISA, with all the same tax breaks. Most of the large institutions which offer ISA investments will soon be offering JISAs too.

The annual investment limit will be £3,600 initially, as compared to £10,680 for a full ISA. There are a couple of key differences, notably that the funds in a JISA will not be accessible by the child until they reach the age of 18, except in special circumstances.

The JISA is a replacement for the rather clunky, quite complicated and mostly dull Child Trust Fund (CTF) arrangment which kicked off a little under a decade ago. Unfortunately it seems that children who qualify for CTFs won’t qualify for JISAs: the JISA is available to children born after January 2, 2011, or before September 1, 2002 who are aged under 18.

Perhaps the most exciting thing about JISAs is that parents and grandparents (or benevolent uncles and aunts for that matter) won’t need to understand a whole load of new rules or products. If you want your special little one to have a cash JISA you can have it, or if you want an investment JISA there are no particular restrictions on the funds choice, so you can go ahead and invest in your favourite unit trusts and other funds.

So, people who are already familiar with investing and funds, and perhaps already have an investment portfolio of their own will be able to make sensible decisions for the money they would like to invest for little Johnny or Jill. Or indeed they can just ask their independent financial adviser to advise on a suitable plan and combination of investments.

It looks like the high street banks and building societies will be gearing up for a sales offensive on JISAs. I would caution you not to be drawn in too quickly: before signing up based on a beautifully drawn and marketed pamphlet, please consider whether each investment you are looking at has any track record, and if so how it compares to its sector average. You see, it is frequently surprising to consumers to find out that the best sounding stuff actually has disappointing performance, coupled with high ongoing charges.

For example, an IFA can probably introduce you to equity tracker funds with annual charges less than 0.5% per annum. Alternatively, you might choose to invest in some sexier funds based on the economies of, say, Russia, China, India, Brazil or other emerging markets, or the Pacific rim including Australasia. You couldn’t access those markets with the boring old CTF!

Remember – a JISA is a tax wrapper, not a product. Make it into what you want it to be. And give a leg-up for that special little-un who may need help with a car, university fees or a house deposit one day. 🙂