With petrol and food prices continuing to rise, and inflation overall causing a headache for the Bank of England base rate setters we are all feeling the squeeze of the Government’s budget deficit. Never has it been more important to make the most of the money you work hard to earn.
End of tax year planning tips are an important way to make the most of the rules.
Financial Services Compensation Scheme
As everyone by now probably knows the bank deposit protection limits were raised to £50,000 per saver, per institution last year following the banking crisis in 2008/09.
The good news that may not have reached you is that these limits were raised on 31 December 2010 to £85,000 per saver, per institution. Confirmation of this can be found here and there is a great list for you to check which banks/institutions you are with here.
The Individual Savings Account is probably the easiest tax break, and most straight forward of all, to make use of. Assuming it is appropriate for you to do so, you can put away up to £5,100 in to a Cash ISA and up to £5,100 in to a Stocks and Shares ISA. Or, you can put up to £10,200 in to a Stocks and Shares ISA.
Once invested you will enjoy tax free interest on your Cash ISA, and Capital Gains Tax free growth on your Stocks and Shares ISA. This is highly generous given that you could build up a significant sum over the years that doesn’t even have to be declared on a tax return.
Please also note that the 2011/12 ISA allowance is expected to increase to £10,680.
There are lots of opportunities to take advantage of here with the contribution rules going through a transitional period.
The first point to note is that if you earn more than £130,000 a year then your maximum contribution will be limited to either £20,000 or £30,000.
If you earn less than £130,000 per annum then you can contribute as much as 100% of your annual gross income to a pension.
Tax relief will be paid at your highest rate, e.g. it will cost a 40% taxpayer £60 to put £100 in to their pension.
If you don’t make any contributions this year, don’t worry, you will still be able to contribute to a pension next year in lieu of your allowance for the 2010/11 tax year. In fact you could make a contribution in the new 2011/12 tax year and nominate it as part of your allocation for any of the 2008/09, 2009/10, 2010/11 or 2011/12 tax years.
The annual contribution allowance will be £50,000 after 6th April 2011, which means you could contribute as much as £200,000 to a pension in the 2011/12 tax year.
For those with high levels of pension assets (including personal and occupational) the lifetime allowance limit is proposed to be reduced to £1.5m after 6th April 2011, so any new contributions made now should be carefully considered.
For those with relatively low levels of pension assets will still be able to take their entire pension pot as a lump after the age of 60 if their pension assets are worth less than £18,000.