As we approach the end of the current tax year, now is a good time to consider using up any unused annual allowances before you lose them.
ISA allowance
The annual allowance is £20,000 and once we reach the 5th April, this year's allowance will be gone. There is no provision to use up prior year unused allowances. The advantage of an ISA is that any interest or growth on investments are tax free. You can also withdraw funds from them at any time making them tax efficient for future income. You will however be contributing to them out of net (taxed) income.
Pension Contributions
Pension contributions are another tax efficient way of putting funds away for future income. If you are running a limited company, company contributions are a great way of reducing your corporation tax bill without increasing what you have to report as income on your personal self assessment return. If you are employed speak to you employer about a salary sacrifice arrangement, particularly if you are a higher rate tax payer.
The annual limit on pension contributions is currently £40,000. Unlike ISA's, you can use up previous years unused allowances up to three years. There are lower limits for high earners. Pension contributions are very tax efficient although the funds are tied up until you reach the minimum retirement age which, for many now will be 57 years old. They do require planning to avoid tax penalties if the lifetime allowance (£1,073,100) is exceeded but good to make regular, annual contributions that will not put too much astrain on personal or company finances.
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