If you have an Individual Savings Account (ISA) you won’t be charged tax on withdrawals (including any interest, growth or dividend income). There is a limit on how much you can save into your ISA each year. This is a ‘use it or lose it’ allowance. If you forget to maximise your contribution (£20,000 per tax year), this allowance does not roll over to the next financial year.
There are several types of ISA, and its important to understand the pros and cons of each. Generally, an ISA could be liable to IHT. So if you’re starting to think about your estate planning, it’s always a good idea to talk to your financial adviser.
In a recent interview, we spoke to Paul Poulter, an IFA at Wren Sterling. “When speaking to new clients, it’s not unusual to find that they haven’t actually utilised that year’s ISA allowance – even as the tax year end approaches. As an adviser, I would encourage you to use this at the start of the year. Waiting to use these allowances means that you’re not benefitting from the possible growth during that year. So, if you’re able to, it’s always a good idea to use them as early as possible.”
Do you know how much you’ve contributed to your pension this year? You, and others on your behalf such as an employer, can make combined contributions up to your annual allowance tax efficiently. Your own contributions receive tax relief as long as they don’t exceed your earnings or the annual allowance (£40,000) – helping you save for your future. £1 million in a Defined Contribution pot sounds like a huge sum of money, but it would only equate to a pension income of just over £40,000 per year if you withdrew 4% per year from your pot. It’s important to keep an eye on how much you’ve saved, and whether you’re on track for the kind of retirement you want.
Unlike your ISA allowance, once you’ve used up your current year’s allowance, you can benefit from the ‘carry forward’ rule to make use of any unused allowance from the last three years if eligible.
More and more people are likely to be hit by the lifetime allowance, as it has been frozen at its current level, and will remain there until 2025/26 tax year.
Find out more on retirement income planning from Gareth Hope, our Head of Research.
Tax isn’t just something you pay. It’s part of your financial plan. Making the most of the reliefs and exceptions you’re entitled to could save you money in the long run.
Inflation is hitting families hard. Some clients used gifting rules to support their children financially now, while reducing their future Inheritance Tax liability. Gifts of £3,000 can be made annually with no impact on the nil rate band (£325,000) or inheritance tax charge. If you don’t reach the this limit in one tax year, the balance can be carried forward.
With the lifetime and annual allowances rules limiting the amount savers can put in their pensions, gifting rules are a useful way to minimise your estate – and see the benefits to your loved ones.
5th April isn’t far away – and there are likely to be suggestions your financial adviser will make to support your financial plans that aren’t covered in this short article. It’s just an article. It’s not specific to you, and your situation.
If you miss your chance to make use of these reliefs and allowances, what can you do to make the most of 2023?
Part of financial planning is knowing when you’re going to need your funds, and setting up your plans accordingly. Asking yourself a few key questions:
The information provided on this page is for tax year 2022/23.