16 March 2018
Yes folks, the lambs are in the fields and the chocolate bunnies are in the shops, which can only mean one thing. End of the tax year is coming up!
If you haven't already, this is the weekend to rummage down the back of the sofa and work out the plan of attack. Even if you don’t have a spare bean to your name, read on as there may still be a few (legal) wheezes open to you to shuffle stuff and minimise your tax bills.
1. Even if you don't have any spare cash today, you can always move any existing investments into an ISA environment as this year’s contribution. Got some old shares in a trading account? You could move them into an ISA.
The benefits of this paper shuffling are to get your investments into a largely tax free environment. Some online investment platforms will let you sell shares free of charge, then stick the money into the ISA for you and immediately buy them back. For some ridiculous reason the industry calls this arrangement “Bed and ISA” (and does so with a straight face!?). When choosing which investments to move over, focus on income generating ones first. Ones which pay the most dividends. Why? From April this year, we’ll have to pay tax on dividends over the revised lower limit of just £2,000 for stuff held outside an ISA.
2. If you have any spare cash, you can invest up to £20,000 a year in an ISA. And a further £4,128 in a Junior ISA for the kids. If you already have a cash ISA which you have paid into this year, you can also open up a stocks and shares ISA as well – the total combined contributions into both can’t be more than £20,000.
3. Don't suffer from paralysis by analysis. Even if you don't know where to invest it, you can always stick some cash into a stocks and shares ISA, leave it in the cash account and make your investment decisions later. Just get it in the ISA by 5th April to make use of this year’s allowance before you lose it. And then worry about where to invest it later.
4. Don't forget pensions. Moving money into a pension has great tax relief or put simply, bags you some free money. If you’re a higher rate taxpayer, for example, and you contribute £8,000 you will get a £2,000 Government top-up. And then you can claim back an extra £2,000 on your tax return. A basic rate taxpayer would get the £2,000 Government top-up. As a rule of thumb we can each stick up to a whopping £40,000 a year into a pension.
5. Yes – they have “Bed and SIPP” too. Doesn’t that just roll off the tongue! If you don’t have any spare cash but have some investments which you can set aside ‘till you’re at least 55, then you can move investments into the quarantined pension environment and get tax relief on this contribution. Don’t forget the carry forward rules which let you benefit from any unused allowance from the previous three years – useful if you have come into a sum of money. Also if you own a business and are in the lucky position of having cash on the books, your company can make an employer contribution. As always with pensions there’s a ton of small print, so do your homework on the rules or see a financial adviser.
I hope that’s useful food for thought. If you need to pick a home for your ISAs and SIPPs then don’t forget our Best Buys pages which will share what we think – and what 1,300 other investors make of the various providers out there too.