Planning strategies to consider before 5 April 2024

Planning strategies to consider before 5 April 2024 Have you recently evaluated your ISA and Pension situation?

As we approach the end of the tax year on 5 April 2024, it presents an ideal opportunity to assess and maximise your investment into your pension and ISA. Allocating time for this review can provide valuable insight into potential opportunities for you and your family. Here are some things to consider:

Individual Savings Account (ISA) Allowance

You receive an ISA allowance of £20,000 in the current tax year.

Contributions can be allocated to a Cash ISA, Stocks & Shares ISA, Lifetime ISA or Innovative Finance ISA. ISAs are a ‘tax-efficient wrapper’ which can make a big difference to your money over time.

As a married couple you both can use your individual ISA allowances, enabling you to put up to £40,000 in ISAs between you.

Investors who have yet to use up their full ISA allowance should discuss with us the potential to sell shares which are outside their ISA and reinvesting the proceeds within the tax-exempt ISA wrapper.

However, care should be taken as this could trigger a Capital Gains Tax charge.

Junior ISA ( JISA)

In the same vein as the ISA suggestions, children are entitled to a Junior ISA (JISA)

allowance of £9,000 per annum.

Consider funding a JISA to give your children a nest egg when they turn 18.

If the child has a Child Trust Fund (CTF) you must transfer the funds within the CTF to a JISA before you are able to invest in the JISA.

The Lifetime ISA

A Lifetime ISA (LISA) applies to individuals aged 18 to 40 who are either planning to purchase their first home or preparing for retirement.

With the ability to invest up to £4,000 annually, the government bolsters your investment with a bonus of 25% on the amount of money you invest, up to a maximum of £1,000 per year.

This money can be used to buy a new property (subject to certain restrictions) or accessed when you turn 60 to supplement your retirement income.

Access at any other time causes a 25% charge to be deducted.

Pension Contributions

Making pension contributions should be a key consideration at the end of each tax year as pension funds enjoy unparalleled tax treatment and distribution rights. These benefits are listed below.

Any pension contributions made into a personal pension scheme are eligible for tax-relief. The pension scheme will claim this tax-relief, equal to the basic rate of tax, from HM Revenue & Customs (HMRC) on your behalf and add it to your pension fund. You’ll receive additional tax relief if you’re subject to a higher tax rate exceeding 20%.

In the current tax year of 2023/24, pension contribution limits have been increased from previous tax year limits. The annual pension contribution on which you can claim tax-relief is now the lesser of your relevant pensionable earnings or an annual allowance of £60,000 gross. The limit includes any pension contributions made by your employer or by a third-party into your pension plan.

All UK residents under the age of 75 can contribute up to £3,600 gross (£2,880 net) per year, even if they have little or no income.

However, if your adjusted income (typically your total taxable income plus employer pension contributions) exceeds £260,000 per tax year, the amount of tax-relief is restricted. In essence, the annual allowance (the amount you can pay into a pension which gets tax-relief) is progressively reduced by £1 for every £2 of income over this threshold, down to a minimum of £10,000 gross (£8,000 net) So, for those whose adjusted annual adjusted income above £360,000 the amount which can be paid into a pension which will attract

tax-relief is limited to £10,000 gross per tax year.

For individuals aged over 75, no tax relief is provided on personal contributions made, although employer contributions can still be made into the personal pension plan as normal.

Reviewing your pension status and that of your family members is crucial for effective financial planning for e.g., not only are you establishing a pension fund for your retirement but any unused pension funds on death can be passed to family members tax-efficiently and outside of your estate.

As well as pension contributions to your own pension scheme, contributions can also be made on behalf of your minor and adult children and your grandchildren. There are several advantages to doing this which we can discuss should this be of interest to you.

‘Carry Forward’ Rules

If eligible, you can make additional pension contributions, by using any unused annual allowances from the previous three tax years – this is referred to as ‘carry forward’.

These rules allow you to increase the amount of pension contributions you can make in this tax year as long as you were a member of a pension scheme in the three tax-years being considered.

The additional pension contributions can be made by your employer/company or by you personally as long as certain rules are met.

As this is a complex area of advice please call to discuss.

It should be pointed out that by the end of this tax year, you will lose the opportunity to use up any unused annual allowance for the 2020/21 tax year.

To discuss making ISA and pension contributions in this tax-year or any other pension and investment related matter please contact us on:

01530 860190

info@principlefinancialservices.co.uk

www.principlefinancialservices.co.uk

The Springboard Business Centre Mantle Lane Coalville Leicestershire LE67 3DW