Your Money: ISA’s & Pension Contributions

Don’t waste your tax efficient saving and investment allowances

Every tax year your tax efficient savings and investment allowances are renewed, which means that before the end of each tax year (6 April to 5 April), you may want to make sure that you have made the most of your allowances.

The 2011/12 tax year ends on 5 April, and your allowances include:

ISAs

Each year you can save and invest into an ISA (Individual Savings Account), and while the amount invested does not attract tax relief, the income and gains on the investment are free from most taxes. The amount that you can put away increases each year in-line with CPI inflation.

  • The total ISA limit for 2011/12 is £10,680;
  • £5,340 of which may be saved in a cash ISA.

You can transfer previous years’ ISAs into new ISA accounts to get a better rate or return without losing the tax relief, but you must do it in the correct way, and there may be limitations. You can transfer cash into stocks and shares accounts, but NOT the other way round.

In November 2011, the Junior ISA was introduced, designed to replace the Child Trust Fund (CTF) for under 18s that live in the UK but missed out on CTFs.

  • The total Junior ISA limit for 2011/12 is £3,600;
  • The money can be split between a stocks and shares and cash ISA account, one of each can be held at any one time;
  • Anybody can pay into the Junior ISA, and the money belongs to the child but they cannot take it out until they turn 18, when it will automatically turn into an ISA.

Pension contributions

  • Pension contributions are paid net of basic rate tax, and the pension provider recovers the tax element. Up to £3,600 per year (gross) may be invested by any individual irrespective of whether they have earnings to match it or not;
  • Pension contributions also save higher rate and additional rate tax for those liable, and this relief is normally given through the self-assessment return;
  • Tax relief is generally only available for pension contributions of up to £50,000 a year, but please discuss with us the relief available to you for 2011/12.