Planning opportunities at tax year end

It’s fair to say, the last year has brought a number of alterations and challenges for financial advisers. These include significant changes to legislation relating to pension savings, regulatory changes, such as the roll out of the Consumer Duty, and a challenging economic environment that has caused market instability.

So, here I take a high-level look at some of the main considerations for financial planners as we approach the tax year end, in order to ensure the best possible outcomes for clients. 

Pension planning

It has long been understood that contributing to a pension is at the top of the tree when it comes to tax-efficient retirement savings planning. However, in the past, many individuals may have stopped contributing due to Lifetime Allowance considerations. Alternatively, they may have reduced contributions due to the effects of the tapering of the annual allowance, or the money purchase annual allowance.

The 2023 Spring Budget provided welcome news for these individuals as it increased the full annual allowance from £40,000 to £60,000 and the money purchase annual allowance from £4,000 to £10,000. What’s more, the adjusted income threshold where tapering starts to take effect was increased to £260,000 and has ensured even those who are fully tapered can pay a minimum of £10,000 into a pension for the current tax year.

Furthermore, there was good news for anyone with Fixed or Enhanced Protection. Previously they were unable to accrue any further benefit without losing this valuable protection. Provided the individual held valid Fixed or Enhanced Protection on 15 March 2023, they can now make contributions in the current tax year without losing this protection. For some individuals, through using carry forward, this could mean contributing up to £180,000 without losing protection or incurring an annual allowance tax charge.

Last, but certainly not least, is the announcement to remove the Lifetime Allowance tax charge for the current tax year and the proposed replacement legislation from 2024. For clients likely to exceed the Lifetime Allowance (or it’s replacement), this means making personal pension contributions should certainly not be discounted. 

All this creates additional pension saving opportunities for many individuals. However, there are also considerations for those pension clients who are in the decumulation phase. For instance, will their personal allowance be utilised before the tax year end?

For more information on how our platform can help you with pension planning on behalf of your clients, I recommend viewing our video on Practical tips for pension planning at tax year end.

ISA planning

Compared to the considerations and calculations for pension contributions, ISA allowances are generally straightforward. However, there are some important points to think about as we approach the tax year end.

First, as you will know, the ISA allowance is “use it or lose it” and cannot be carried forward like pension contributions. As such, it makes sense to use this allowance wherever possible, especially if the client has unwrapped investments that could be moved into the ISA through a Bed & ISA process.

If new money is available, it’s important to consider the allowance even when the client is concerned about investing in these uncertain times. There are many options available to clients who are reluctant to invest in the markets at present – including cash choices. These can be utilised alongside an advice firm’s normal investment process. We highlight some of these options in our video on Using the ISA allowance in uncertain times.

One additional point to think about following the 2023 Autumn Statement is the government will harmonise the account opening age for any adult ISA to 18 from April 2024. This may be a consideration for any clients with children or grandchildren of a certain age. The current rules allow for 16- or 17-year-olds to contribute the maximum subscription to both a Junior ISA and an ordinary adult cash ISA. This opportunity will end on 5 April 2024.

Finally, as the ISA allowance is so valuable, it seems to me that it doesn't generally make financial sense to have any fees deducted from the ISA wrapper. To find out how adviser and platform fees can be paid without taking funds from a client’s ISA, please view our video on Tax efficient fee funding.

Investment Accounts

My final thoughts relate to Investment Accounts. The reduction in the capital gains allowance – to £6,000 for the current year and £3,000 for next year – means that capital gains planning is more important than ever.

While utilising the capital gains allowance is a common consideration, it’s also important to think about capital losses. This is because any overall capital losses within a tax year can be carried forward indefinitely if reported to HMRC within four years of the loss occurring. These losses can then be used in future years, after the annual exemption allowance. Losses may also be used to offset other capital gains. For example, could they be used to offset gains from a sale of a buy-to-let property?

In some ways, the worst scenario for a client with an Investment Account is to have no capital gains or capital losses at the end of the tax year. However, even where a portfolio as a whole may not show a gain or a loss, the underlying fund holdings usually will. Therefore, we can use this to our advantage to target either gains or losses.

Capital gains or losses can only be generated by selling investments and we do need to be aware of the disposal matching rules (also known as the 30-day rule) when repurchasing the same assets. However, the 30-day rule does not apply when purchasing the same assets within an ISA. As such, when considering which assets to target for a Bed & ISA transaction, it’s certainly worth thinking about the options available and what best suits individual clients. Again, our video on Tax planning using a Bed & ISA runs through the options available to you.

It may also be a good idea to review before the end of the tax year how and in whose name an Investment Account is held. When advising a married couple or clients in a civil partnership, it’s prudent to consider the best options available, especially if the couple are paying tax at different rates. As Investment Account assets can be transferred between spouses or civil partners on a “no loss, no gain” basis, consideration should be given to aligning investments in the most tax-efficient manner. Even where investments are held in a single name, you may wish to consider transferring assets to use two capital gains allowances. To find out how our platform can help with your capital gains planning, I suggest viewing our video on Practical Capital Gains management.

That’s all for now, but do keep an eye out for other videos and materials that will be available as part of our Tax year end planning hub.

Happy tax planning!