The snow is falling as I write this, courtesy of the ‘Beast from the East’, but for me it’s not the only flurry of activity that seems to have hit my doorstep over the last week. Each year, the slew of post ahead of the 5 April tax year-end deadline seems to grow exponentially – don’t they realise that I helped set-up 7IM to help people precisely with these matters and my family’s money is still invested in the business? I do realise that I am in a somewhat unique situation here, however, and that there is a list of allowances and limits that people should be aware and act ahead of this date. Perhaps this article will help you with the basics and mean that you don’t actually have to read any of that mountain of junk mail!

Pension allowances

Immediately after last year’s paltry re-election result, the government introduced yet
more measures to curb people’s ability contributions to their pension – although these were on the periphery, leaving the main allowances the same. They also very kindly backdated these to April 2017 – a matter that seemed to escape our press almost entirely.

For 2017/18, therefore, the lifetime allowance remains at £1 million, but is rising (for the first time in quite a while) by £30,000 in line with the 3% level of inflation on 6 April. And it is a really good prompt to review to how much you have saved and also how by much these savings have grown, since investment gains are included, and particularly if you have participated in any defined benefit schemes (always notoriously difficult to value). If you reach the limit now or could in the future, any excess taken as a lump sum is taxed at the rather stiff rate of 55%, or 25% on top of your usual income tax if taken as income.

The annual allowance again stays at £40,000, but here is where some of the changes kick in. So, if you have in any way accessed your pension pot, you have officially started to draw on your pension and so can now only pay in a measly £4,000 per annum. Meanwhile, another change from earlier applies if you earn over £150,000. Then the allowance tapers down to just £10,000 as your income increases. The good news is that you can use any unused allowances from the previous three tax years to help here.

If one of the reasons you’re paying into your pension is to reduce your income tax bill and have paid up your own limits, you can also look to pay in to your spouse’s pension and even into your children’s. There are different amounts applicable here if they’re working or not, but it is worth a look – just do act before 5 April.

ISA allowances

While we are probably all aware of the £20,000 ISA allowance per person, many aren’t aware that unlike many allowances, ISA allowances are individual ones so you can’t open an ISA in joint names or on behalf of another adult, so do plan ahead. Meanwhile, if you have any children who are 16 and 17, you can help them with both an adult (cash) ISA and a Junior ISA (as long as they don’t have a child trust fund). That could mean providing your child with up to £24,128 from which any gains will be tax free.

Dividend allowances

In 2017/18, this allowance is £5,000 per person. However, in 2018/19, that limit is dropping to £2,000. So if you have a business from which you take dividends or enjoy dividends from your investment portfolio, it’s worth thinking if you can get ahead here.

Capital Gains Tax allowances

If you’ve used up your own annual allowance of £11,300, do see if there’s an opportunity to benefit from gifting investments to your spouse if you would benefit as a couple from selling them. Again there are some rules around this, but given how much markets rose in 2016 and 2017, this might be the opportunity to rebalance some of your portfolio and make sure that market movements have not overly distorted your original diversification strategy. After all investments can go down as well as up so it’s worthwhile ensuring that your portfolio can cope in all market conditions.

It’s also worth seeing whether you recorded a loss in your investments in 2016/17. That loss can be offset against any 2017/18 gains that are above the annual threshold and so could be useful given you can’t carry forward any unused allowance.

Benjamin Franklin once said that “you may delay, but time will not” – something we should all remember ahead of the 5 April deadline – and especially if your affairs are quite complex, it is certainly worth getting some very specific tax support from a specialist adviser given everyone’s circumstances are unique to them and since these rules change so often, once your investments and tax have had a review, then all you have to do then, like me, is sort through all that mail and work out what can be dumped in the recycling bin – for me, at least, always a satisfying job.

Written by Justin Urquhart Stewart, Co-founder and Head of Corporate Development of Seven Investment Management LLP

For further information please contact Jordan Gillies at Seven Investment Management.

Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales number OC378740