As the last date (5 April) to put money into this current years ISA fast approaches, many people are scrambling to top-up their ISAs. Most advice that is available is for those people who still haven’t used up all their £15,000 ISA allowance. But what if you have used up all your allowance but still want to invest tax free. In that case, this article is for you.
There are 3 other ways, apart from an ISA, that you are able to invest and shelter your money from tax:
1) Capital Gains Allowance – Many people don’t know about the capital gains allowance. With this, you can make gains of up to £11,000 a year without having to pay tax. So if you have shares outside an ISA, simply sell them before 5 April and if you sell an amount that is less that £11,000 in value, than all gains are tax free. (You can then use the money to buy the shares again but they needs to be at least 30 days in between the sale date of the shares and the date you buy them back again.)
To find out more about about capital gains, read the two articles I wrote on What are Capital Gains and who needs to pay Capital gains Tax and on what assets .
2) Pension Contributions – Make full use of your pension allowance (whether you use a company pension scheme or a SIPP) is one of the most efficient ways to shelter your investments from tax and to save for retirement. The new annual allowance and carry forward rules add to a pensions appeal as they give greater benefits to you. (You can now carry forward any unused annual allowance for the previous 3 years).
When putting money into a pension, tax relief of the contribution is given at the basic rate (20%) for all investors and at the highest marginal rate paid by higher and additional rate taxpayers. So if you are a basic rate tax payer and put money into a SIPP, an £80 contribution will be worth £100 as the government tops up the £20.
Even if you have no taxable earrings, anyone under the age of 75 can still put £2880 into a pension and with the government topping up the rest, it would be worth £3600.
If you start planning your pensions efficiently now, you will reap the rewards in your retirement. As personal allowance is currently £10, 000, it means that married couples can earn £20, 000 in retirement tax free with careful planning.
Again most people don’t know what a tax exemption saving plan is and thus they could lose out on saving a little extra even if your ISA has been fully used up. Friendly societies offer these plans and this allows you to save up to £270 a year tax free. Visit a friendly society website such as Scottish Friendly or Sheffield Mutual to find out more.