Use ALL of your ‘use it or lose it’ ISA allowances

Virtually everyone knows about the £20,000 ISA allowance and most people with the means to do so remember to utilise it (although there are many who forget!) but quite a few people fail to use all of the ISA-type allowances available to them and their family.

For married couples it is almost always a good idea to ensure that both people’s allowances are used. For those under 40, it can be a good idea to open a Lifetime ISA and benefit from a 25% government ‘top up’ on the maximum £4,000 deposit. For those with children, using the relatively generous £9,000 Junior ISA allowances can be a very good idea not least because JISAs can be rolled into adult ISAs on the child’s 18th birthday, thus providing highly tax efficient long term investment returns and intergenerational wealth planning.

All in all, a family of four can contribute £58,000 per year into these highly tax efficient structures. Crucially, if these annual allowances are not used then they are lost. There is no ability to ‘carry forward’ unused allowances to future tax years. This is basic stuff, but it is surprising how few people, even among those that can afford to do so, use all of them every year.

 

Use ALL of your ‘use it or lose it’ pension allowances

Higher earners typically face a limit on the amount they can put into their pension; this limit is often as low as £10,000. However, it’s possible that the higher earner wasn’t always such a high earner and therefore can ‘carry forward’ unused pension allowances from previous tax years. Doing so offsets the current year’s tax bill such that the higher earner could get really quite a large tax refund.

Another option can be to give money to a spouse to contribute to their pension. This works best when the spouse is a 40% or 45% taxpayer but doesn’t earn so much that their pension ‘annual allowance’ is diminished like it is for the higher earning spouse. The tax rebate on such contributions can be as high as 66%. In other words, in some instances a £10,000 contribution can return £6,666 of tax to the family; that is a big saving!

 

Consider a ‘Knowledge Intensive’ EIS Fund

Investing in EIS companies, albeit fraught with risk, comes with significant tax benefits. One of the primary tax breaks is that your income tax bill can be reduced by 30% of the amount of your invest (i.e. a £100,000 investment could reduce your tax bill by £30,000). Usually, EIS investors don’t have exact control over when their investment is made and therefore don’t know for sure in which tax year the credit will apply. However, a Knowledge Intensive EIS Fund allows the investor to claim tax relief in the current tax year allowing them to ensure, for example, that they have the high income against which to offset the EIS investment.

EIS investing is certainly not for everyone and we always advise that it makes up only a small portion of any of our client’s net worth but it does often have a role to play in the diversified investment portfolio of higher-earning individuals.

 

How We Can Help

We routinely advise on the structuring of clients’ assets including ISAs, pensions and EIS investments. We also manage investments on behalf of our clients. Please get in touch if you think that you might benefit from our help to grow your savings and investments in a tax efficient manner over the long term.