Experts are advising savers and investors to take advantage of the tax rules as they currently stand for ISAs, pensions and capital gains tax (CGT), before any possible changes.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The key is to identify those that work for your overall finances, which you’ll be grateful for even if you don’t get the changes you were expecting.”
Here are seven things you should think about doing in the next month.
Paying into a pension
There are rumours that the Chancellor, Rachel Reeves, may make changes to the pension annual allowance or pensions tax relief. Currently, higher-rate taxpayers benefit from tax relief that sees a £60,000 contribution cost just £36,000, or £33,000 for someone paying additional-rate tax.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “If you haven’t been in a position to contribute much to a pension in recent years, then you can scoop up any remaining allowances from the previous three years through carry forward. This has the potential to turbocharge your contribution up to a maximum of £200,000 this tax year (provided you earn at least that much per year).
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“Don’t worry if you don’t have enormous sums to put away, though, as even more modest sums will still benefit from tax relief, and time in the market will see it grow and build your retirement resilience.”
Pay into your ISA
Potential changes to CGT are prompting savers to max out ISAs ahead of the Budget. Among Hargreaves Lansdown customers, the number putting their full £20,000 allowance into stocks and shares ISAs so far this tax year is up 31% compared to last year.
Coles said: “It’s a straightforward step that can make a big difference. By investing through a stocks and shares ISA, you can avoid CGT completely, both when you sell up and cash out and whenever you rebalance your portfolio as you go along. Even the fact that you don’t have to worry about putting gains on these investments into your tax return can be life-changing. You also protect your investments from dividend tax.”
Take out a JISA for your child
Junior ISAs (JISAs) offer a triple tax bonus. They grow free of CGT and dividend tax, which might not be a major concern for an infant, but could make an enormous difference as they get older.
They also fall outside the rule that money invested by parents for their child will be treated as theirs for tax purposes when it produces more than £100 of income per year.
Finally, Junior ISAs come in handy for anyone who is concerned about inheritance tax (IHT). You may be keen to give money away, but may not want to entrust it to someone at a young age. A stocks and shares Junior ISA for a child under 18 will count as being handed over immediately for IHT purposes, but will be tied up until they’re old enough to make sensible choices with it.
Use ‘Bed and ISA’ for existing investments
ISAs aren’t just useful for brand-new investments. If you have assets outside an ISA or pension, you can use the share exchange or ‘Bed and ISA’ process to sell assets outside an ISA – within your £3,000 CGT allowance – and move them into the ISA wrapper.
Coles said: “This process has a ridiculous name, but is an eminently sensible approach for those with portfolios stretching beyond ISAs. It effectively allows you to sell assets and buy the same ones immediately within the ISA wrapper. That way, you don’t have to worry about either dividend tax or CGT on these investments at any point.”
Use your CGT allowance on share gains
CGT is charged on the profit made from the sale of assets that have increased in value, such as second homes or investments.
Everyone has an annual CGT allowance of £3,000, with this tax only charged on gains above this amount. This threshold has been significantly cut in recent years. Just two years ago, CGT was only charged on gains over £12,300.
You can often choose when to take a capital gain, so you can do so this tax year and make £3,000 of gains tax-free.
Coles said: “You won’t regret realising your gains gradually, and spreading them over a number of years to keep your tax bill down. To reset the CGT, you can either sell and buy back within an ISA immediately (Bed and ISA), stay out of the market for 30 days and buy the same assets again, or consider new investments and buy back in straight away.”
Transfer assets to a spouse
If you’re married or in a civil partnership, you can transfer the ownership of some assets to your spouse or civil partner and there’s no CGT to pay on the transfer.
This doesn’t reset the tax to zero. However, they have their own allowances to take advantage of, so they can use their annual CGT allowance to cut the tax bill. If they pay a lower rate of income tax, they’ll also pay at least some of the CGT at a lower rate too.
Your partner can also wrap investments in their annual ISA and pension allowances, to ensure as much of your collective wealth is invested as tax efficiently as possible.
Use your gift allowances
You can give away up to £3,000 per year under the current rules and it’ll come out of your estate immediately for IHT purposes.
Not only is there an opportunity to save IHT, but you will also be around to see your family benefit from your gift, and can help ensure the money is put to the best possible use.
