Several of the tax and investment allowances afforded to individuals come to an end on 5th April each year, with a new set coming into play from 6th April. Despite these dates being the same each and every year, human nature leads us to leaving addressing matters such as ISAs or pension contributions to the last minute!
Every year we talk to clients about getting their affairs in order well in advance of the end of the tax year. Yet every year, we find ourselves rushing around, sending off paperwork and cheques in an attempt to get funds cleared before the cut-off dates.
Here are 6 ways to get ahead and avoid the last minute rush come the approach of 6th April next year!
Make regular contributions
Rather than waiting until the 5th April deadline is approaching to make lump-sum contributions, you could consider making regular contributions to pensions and ISAs instead. The ISA contributions limit is £20,000 for the year 2018/19. So if you plan to utilise your full allowance, you can arrange to make monthly payments of £1666.66 into your ISA account.
Assuming you’re not subject to annual allowance tapering, the normal annual allowance for pension contributions for 2019/20 is £40,000. Depending on the amount you intend to contribute, you could split this equally over 12 months.
The other benefit of doing this is that by making regular investments, you can reduce the risk of buying into the market at a single point in time, a technique that’s often used during times of market volatility (as we have experienced recently).
Get your contributions in early!
If you are in a position to do so, there is certainly an argument to top up your ISA and make any pension contributions during the first few weeks of the financial year. Not only does this give you the peace of mind that you have everything sorted, but when compared to leaving lump sum payments until the end of the year, you’ll have almost a year’s worth of time for the investment to potentially grow in value.
Make contributions to your spouse’s pension
Starting a pension for your spouse (if they do not have one), or topping up if they aren’t contributing their full allowance, may be a tax-efficient way of saving if you have the funds available.
Bear in mind that when it comes to drawing an income in retirement, if a couple’s pension income only comes from one partner, only one tax-free personal allowance can be used. Where both spouses have a pension pot to draw from, two personal allowances can be utilised – therefore potentially doubling the tax free allowance a couple has (depending on other sources of income).
Set up accounts for family members
Again, if you have the funds available, setting up and contributing to ISAs in the name of children/grandchildren can be a useful way of cascading wealth to the next generation. However, any contributions made on behalf of children fall within normal inheritance tax rules, and must also fall within the individual’s personal ISA allowance.
Sometimes, the most appropriate course of planning isn’t to simply top up existing ISA or pension plans, but rather something that requires more thought and therefore time. Depending on what stage of life you are at, you may need to think about re-allocating assets in preparation for retirement. Alternatively, if you are in receipt of a large lump sum, or have experienced any other change in your financial circumstances, this will need to be given careful thought well ahead of the tax year end.
Consider moving your annual review with your financial adviser
Depending on your personal circumstances, there may be a date that works better for you to have your annual review with your financial adviser. For example, if you are a company director, you may want to consider moving your annual review to near your Company year-end. This will allow you to have a clearer picture of your profit and any liabilities due, therefore allowing an informed decision regarding making a lump sum employer pension contribution.
There’s no doubt that getting ahead at the start of the tax year can put you in a preferable position. Not only is there more time to consider the options available to you, once your plans have been actioned, you can sit back and relax!
To discuss your own personal circumstances with one of our financial advisers, and how you can get ahead this tax year, please get in touch.