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Village Features

Ready for ISA and pensions season

Posted on February 28 2018 at 1:07:13


Investors should start to turn their focus to the end of the tax year on April 5, writes Martin Pryor.

ISA contributions have historically always been focused on the end of the tax year. This is the case even though it would make more sense to invest at the start of the tax year, to maximise the period of tax shelter.

This time of year, the personal finance pages start to fill with stories about ISAs, often including tales of ISA millionaires. For all the coverage, these remain a rare breed, but they serve as a reminder that regular saving over a long term can create meaningful amounts of capital.

The past couple of years have seen total ISA contributions falling primarily due to a sharp drop in the popularity of cash ISAs. These have seen contributions fall by over a third between 2014/15 and 2016/17 for two good reasons:

* Ultra-low interest rates and limited competition between banks have made prospective returns look miserable, particularly as inflation has picked up; and

* The introduction of the personal savings allowance in 2016/17 has meant many depositors no longer need an ISA to escape tax on their deposit interest.

Stocks and shares ISA contributions have reached a new high, probably helped by some ISA investors abandoning the cash version. This tax year there are a few points to remember when making your stocks and shares ISA investment:

* The contribution limit (in total to all ISAs) is now £20,000, up from £15,240 in 2016/17. It will be held at £20,000 in 2018/19. 

* Dividends within an ISA are free of UK tax. With the dividend allowance falling from £5,000 in 2017/18 to £2,000 in 2018/19, you may find you have to pay tax on shares held outside of an ISA.

* It is important to get your money into an ISA shelter. Whilst your annual limit can’t be carried forward to the next year, you do not have to invest it all in funds by 5 April – once you hold cash in your ISA you can drip feed investment into funds, if you wish.

March is also a popular time for reviewing and making pension contributions. By this stage you should have a good idea of what your income for the tax year will be and how much you may be able to contribute as a one-off payment before 6 April arrives.

In this tax year, there are several changes to note:

* Thursday 5 April will be the last day on which you can make a contribution to mop up any unused annual allowance from 2014/15. To do so you will need to first use up your annual allowance for the current tax year.

* The money purchase annual allowance was reduced from £10,000 to £4,000 at the start of this tax year, although the legislation achieving this did not arrive until November.

If you have used the new pensions flexibility to draw benefits this may limit the amount you can contribute.

* From 6 April 2018, the lifetime allowance rises by 3% to £1,030,000. At the margin that modest increase may permit more benefits to be taken without triggering tax charges.

* From 6 April 2018, automatic enrolment contribution levels increase, with the total of employee and employer payments rising by about 150%.  There will be another increase of around 60% the following year.

If you want to maximise contributions into either your ISA or Pension before the April deadline, contact us as soon as possible. The calculations involved can be complex and miscalculations can lead to lost tax relief.

* Contact Pryor Portfolio for more information and advice:
Tel: 07961 162818
.(JavaScript must be enabled to view this email address)

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

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