As we approach the financial year end now is a good opportunity to make sure your financial affairs are in order before the 2011/12 tax year.
March is ISA season, with the usual last minute rush to make sure that the ISA allowance is not wasted. Most readers will be familiar with the ISA rules as they have been with us for a number of years now. However as a quick reminder the annual allowance is £10,200 per individual. This can all be used to invest in a stocks and shares ISA with a single provider or can be split into the £5,100 cash element with the remaining £5,100 invested into equities. From 6 April 2011 the annual ISA allowance will increase each year in line with the Retail Price Index (“RPI”); this means that for 2011/12 the new overall limit will be £10,680 with half of that, £5,340, being available for each element.
When considering whether to make use of this year’s ISA some thought should also be given to any investments made in earlier years. For cash ISAs check that the interest rate is still competitive and, if not, look to take advantage of the facility that allows you to transfer to a more competitive account. For stocks and share based ISAs, make sure that the selected funds match your attitude to risk and are performing in line with your expectations. If you previously invested in a cash ISA and feel that your appetite for investment risk has increased, think about transferring cash ISAs to stocks and shares, although seek professional advice first as this is a one way process. It is not possible to transfer from a stocks and shares ISA to a cash ISA.
One tax exemption often overlooked is that which allows capital gains of up to £10,100 to be free of Capital Gains Tax (“CGT”). So if you haven’t used both your CGT exemption and ISA allowance consider selling sufficient unit trust, OIEC (Open Ended Investment Company) or share holdings to mop up the CGT exemption and invest in an ISA to shelter from any future tax.
Pension legislation changes significantly on 6 April with the annual allowance being reduced to £50,000. In essence this means that the maximum contribution to an individual pension arrangement is restricted to £50,000. The new legislation opens up options for those caught by the previous government’s complex regulation designed to reduce tax relief for high earners and makes the need for good financial advice more important than ever.
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