Early tax planning pays off

Many of the tax reliefs available can’t be carried forward into the new tax year, so are lost if not used.

One exception is the annual pension allowance. Provided you have a pension fund, even if you are not contributing to the pension, up to three previous tax year allowances can be carried forward to this tax year. This means, when added to this year’s contribution allowance of £40,000, it may be possible for up to £190,000 to be paid into a pension scheme this tax year.

The new pension rules in this year’s budget make pensions unbelievably attractive, with complete flexibility of withdrawal from age 55. Pensions can also be invested in anything from low risk, low return bank deposit accounts, to commercial properties or even farmland, where rent can be paid tax-free into the pension pot.

I have noticed over the years that many people leave funding their ISAs to the end of the tax year, but this means that a year of tax-free growth and interest is lost when compared to funding the ISA at the start of the tax year. With wrap platforms now being commonly used to hold unit trust and ISA portfolios it is easy, and often free, to transfer investments from a unit trust into the ISA wrapper.

As I mentioned last week, the full 2014/15 ISA allowance will not be available until July, with £11,880 per person available now.

For those who want to combine their annual inheritance tax gifting allowance with income tax relief, a Pension Gifting Trust should be considered for children or grandchildren. With this type of arrangement £2,880 can be gifted into a pension set up for a grandchild. HMRC then adds £720.00 to the trust. This also has the added benefit of reducing the donor’s taxable estate, potentially saving up to £1,152 in inheritance tax.

David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: [email protected]