1. Use it or lose it – make the most of your ISA allowance
2. Quirks in the ISA rules allow extra funding opportunities for children
3. Help to buy / LISA transfer deadline
4. Beware the dividend allowance tax trap
5. Boost your pension annual allowance to £160,000
6. Already accessed your pension flexibly? Watch out for the annual allowance drop
7. Review your pension death benefit nominations
8. Use your IHT-free allowance
9. Reclaim any overpaid tax on pension freedoms withdrawals
10. Scottish income tax overhaul – pensions boost for higher earners
1. Use it or lose it – make the most of your ISA allowance
“Making the most of the tax allowances on offer is one of the keys to boosting your savings pot. Before 6 April 2018, you can save up to £20,000 across your ISAs and benefit from tax-free investment growth. Any unused allowance does not roll-over, so the subscription limit clock resets from 6 April.”
2. Quirks in the ISA rules allow extra funding opportunities for children
“A Junior ISA allows a child to invest £4,128 tax-free each tax year (£4,260 from 2018/19) up until their 18th birthday. However, there is an overlap with the adult ISA rules, which means that between the ages of 16 and 18, a child can save into both a Junior ISA and an adult ISA at the same time.
“The adult ISA subscription limit is currently set at £20,000. This means that in the tax year the child turns 16, they can invest a total of £24,128 tax-free. If you repeat this over three years, it means they can squirrel away over £72,000, which is substantially more than an adult could have saved over the same period.”
3. Help to Buy / LISA transfer deadline
“Savers with funds invested in Help to Buy (H2B) ISAs have a limited amount of time to take advantage of a quirk in the rules which means transfers to Lifetime ISAs (LISAs) won’t count towards the £4,000 annual limit for the 2017/18 tax year.
“Until 6 April 2018 savers can transfer funds invested in their Help to Buy ISA before April 2017 (when the LISA launched) into a LISA without using up their £4,000 LISA allowance. Someone who had contributed the maximum to a Help to Buy ISA between December 2015 and April 2017 – £1,200 in the first month and £200 a month thereafter – would have £4,400 saved.
“If that individual transferred the £4,400 into a LISA and also contributed the £4,000 LISA limit they would receive a 25% bonus on the entire amount – or £2,100 – meaning their total pot would be worth £10,500.
“Savers need to allow enough time to gather all the relevant information and the transfer itself can take a few weeks to complete, so waiting until mid-March to start thinking about this might be too late. The sooner savers start the process, the more likely they are to meet the 5 April deadline.”
4. Beware the dividend allowance tax trap
“The amount of dividend income you can receive tax-free will be slashed from £5,000 to £2,000 in April 2018. Any dividend income received above this amount will be taxed at 7.5% (basic-rate taxpayer), 32.5% (higher-rate taxpayer) or 38.1% (additional-rate taxpayer).
“In pounds and pence, someone who receives £5,000 in dividends would previously have paid no tax but next year they will be hit with a tax bill of £225 if they are a basic-rate taxpayer, £975 for a higher-rate taxpayer and a whopping £1,143 for an additional-rate taxpayer.
“Directors should consider bringing forward their dividend payments to before 6 April 2018 to minimise their tax bills. Personal investors should review their portfolios before the end of the tax year and ensure any dividend-paying investments are held within tax wrappers like an ISA or SIPP, where dividend income is tax-free.”
5. Boost your pension annual allowance to £160,000
“While the amount you can save tax-free in a pension has been pared back by successive Chancellors from £255,000 in 2010 to £40,000 today, savers who use ‘carry forward’ rules can potentially boost their annual allowance to £160,000.
“Carry forward allows you to utilise any unused annual allowance from the three previous tax years in the current tax year. So for this tax year you can top-up your pension with unused allowances from the 2014/15, 2015/16 and 2016/17 tax years.
6. Already accessed your pension flexibly? Watch out for the annual allowance drop
“The pension freedoms launched almost three years ago provide savers with total flexibility over how they access their defined contribution pension pots. However, anyone who uses the freedoms to take taxable income from their fund sees their annual allowance plummet from £40,000 to just £4,000.
“So if you’ve already made use of the freedoms make sure you don’t slip over your new, much lower annual allowance. And if you’re thinking of accessing your pension flexibly, be aware of the significant impact it could have on your ability to save in a pension.”
7. Review your pension death benefit nominations
“Alongside the flexibility introduced by the retirement freedoms in 2015, changes to the taxation of defined contribution pots on death make pensions extremely efficient tax planning vehicles. If you die before age 75 your fund can be passed on to your beneficiary tax-free, while if you die after 75 it is taxed in the same way as income.
“This makes it even more important to make sure your pension goes where you want it to go should the worst happen. Changes in life circumstances such as the birth of a child, marriage or divorce could affect who you want to receive your pension if you die, so the tax year-end provides a good opportunity to review and revise your death benefit nominations.
8. Use your IHT-free gift allowances
“If your estate is above the IHT threshold of £325,000 when you die, the excess could be subject to IHT. Payments made towards the end of your lifetime with the intention of dispersing your estate could also face retrospective IHT from the tax man.
“However, there are some payments specifically set out in the rules that will not be subject to IHT. These effectively allow you to use some of the IHT excess while you are still alive, rather than paying tax on it when you die. These payments include:
Gifts to a spouse or civil partner
Gifts to charity
Gifts to political parties
Gifts in respect of a marriage or civil partnership (up to £5,000 to children, £2,500 to grandchildren)
Small gifts to anyone (up to the value of £250)
Gifts out of regular income provided they do not impact on your standard of living
Remember that if you do make any gifts, it’s important to keep records of them as well as proof of your regular income.
9. Reclaim any overpaid tax on pension freedoms withdrawals
“If you make a single ad hoc pension freedoms withdrawal rather than taking a regular income from your fund you will be taxed on an ‘emergency’ Month 1 basis. This means HMRC assumes you are making 12 withdrawals rather than just the one, with the upshot being you are likely to be significantly overtaxed – potentially by thousands of pounds.
“If you want to get this money back you can do it through your self-assessment tax return, or by filling out one of three forms:
P50Z – If the payment used up your pension pot and you have no other income in the tax year
P53Z – if the payment used up your pension pot and you have other taxable income
P55 – if you have withdrawn only part of your pot and you’re not taking regular payments
10. Scottish income tax overhaul – pensions boost for higher earners
“A major reshaping of the Scottish income tax system will kick in from April 2018. The changes will create two new tax bands north of the border – a starter rate of 19% (£11,850 - £13,850) and an intermediate rate of 21% (£24,000 - £43,430). Sandwiched between these will be the basic rate (£13,850 - £24,000).
“In addition, the higher rate of income tax will rise from 40% to 41%, while the top rate will increase from 45% to 46%.
“The changes have implications for pension savers, who currently receive tax relief at their marginal rate of income tax. Savers in the starter, basic and intermediate bands will receive tax relief at 20%, so intermediate taxpayers will need to claim back the extra 1% through their tax return.
“The change also makes pension saving more attractive for higher and top-rate Scottish taxpayers, who will benefit from an extra 1% of tax relief.”
Bands | Band name | Rates (%) |
Over £11,850*-£13,850 | Starter Rate | 19 |
Over £13,850-£24,000 | Basic Rate | 20 |
Over £24,000-£43,430 | Intermediate Rate | 21 |
Over £43,430-£150,000** | Higher Rate | 41 |
Above £150,000** | Top Rate | 46 |
