The UK tax year ends tomorrow, 5 April 2018. If you're
planning to make full use of your ISA or Pensions/SIPP (Self Invested Personal Pension)
this year, you must act soon. I have been talking about this since February in my Money Tips Daily blog and Podcast, so don't say I didn't warn you!
There are hundreds of banks and pension providers out there. You can invest online or in the High Street branches, but you only have just over 24 hours left.
If you're not sure where to invest, there's a simple
solution. You can just add cash to secure your ISA and SIPP allowances now and
choose investments when you're ready.
As always, I'm giving you information, not offering advice, so take advice from an independent financial adviser and remember that investments can fall as well as rise in value so you could get back less than you put in.
As always, I'm giving you information, not offering advice, so take advice from an independent financial adviser and remember that investments can fall as well as rise in value so you could get back less than you put in.
Here are the basic rules for ISA’s and SIPPs.
ISA (INDIVIDUAL SAVINGS ACCOUNTS)
An ISA is simply a savings account where you can shelter up
to £20,000 from UK tax as long as the money is held in the account and ISA
wrapper. You can also invest funds into a ‘stocks and shares’ ISA, where your
money is invested into shares or a fund holding shares. Again, the tax free
wrapper applies, but the investments can fall as well as rise in value.
When I worked in the bank many years ago, some customers
would have hundreds of thousands of pounds tied up in accounts which not only
paid a low interest rates, but were also taxed. By simply moving their money
into ISA’s they could avoid taxes forever on their savings and earn more money
on their savings, as interest rates were also higher in the ISA accounts.
Remember
that banks have a habit of churning accounts and reducing the interest rate on
those accounts making them effectively obsolete. Despite all the benefits, many of them
would say “no, I’m happy where it is” and refuse to move their money!
If you had invested the maximum allowable amount each year
into ISA’s or similar accounts since they were introduced you would now have
over £1,000,000 in a tax free wrapper. It's also far less hassle when doing your tax returns.
The Stocks and Shares ISA allows you to invest in shares or
funds which invest in the stock market on your behalf. These funds can go up or
down and obviously carry more risk than a cash ISA. If you already own shares,
it makes sense to shelter them in an ISA wrapper to avoid tax on dividends and
CGT or capital gains tax.
Companies like Hargreaves Lansdown offer this ISA service
and has a good online platform.
You can invest in an ISA by making regular monthly
contributions or a single lump sum each year.
Check out the best deals online (e.g. at
moneysavingexperts.co.uk or similar comparison sites) and now is the time to
start shopping around rather than leaving it until the last minute and risk losing
out.
In addition to the ISA allowance, all UK basic rate tax
payers can now earn up to £1000 a year in interest without paying tax on it.
With base lending rates standing at .5% as I write, you’d need quite a lot of
money on deposit to earn £1000 of interest on your savings. Assuming a savings
rate of .25%, you would have to have £400,000 on deposit in order to earn £1000
in interest.
ISA Features
- Save tax - Grow your money free of UK income and capital gains tax (stocks and shares ISA)
- Accessibility - although investing is best for the long term, you can take your money out whenever you need to
- Wide investment choice - choose from deposit based ISA to thousands of managed funds, UK and international shares, investment trusts and more.
SELF-INVESTED PERSONAL PENSION (SIPP)
A SIPP and most other approved pension schemes allows you to
gain 20% tax relief on
qualifying funds you invest into your pension plan. A SIPP generally gives you
a wider choice of investments than a pension plan with a single pension provider.
SIPP Features
- Save tax - Grow your money free of UK income and capital gains tax
- Great value - 0.45% p.a. to hold your SIPP investments.
- Wide investment choice - choose from 2,500 funds, UK and international shares, investment trusts and more
Tax rules can change and the benefits of investing in a SIPP
depend on your circumstances. At present, you can only access the money in a SIPP from age
55 (57 from 2028).
Business owners and the self employed should consult their accountants to see if they can make any last tax plans before the end of the tax year. After the year end might be too late to claim allowances against your profits. In my experience most accountants and reactive rather than proactive and only talk to you when it's all over, and then say "you could have done this or that last year...".
Bonus tip. Get into the habit of saving a percentage of your
income no matter how small to start with. The sooner you start saving the
better, as compound interest (interest on interest) will work in your favour.
Albert Einstein described compound interest as one of the greatest forces on
Earth.
Acton. See an independent financial advisor and do your own
research online.
Check out my Podcast episode "Last. Chance To Claim UK Tax
Allowances Tax Year Ends 05/04" on Anchor! https://anchor.fm/charles-kelly/episodes/Last--Chance-To-Claim-UK-Tax-Allowances-Tax-Year-Ends-0504-e19d1k. Also available on itunes.
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