Making the most of tax allowances, examining savings and boosting pension pots can pay significant dividends.

INVESTMENTS

The Government recently announced that ISAs will have an indefinite life-span and they are a great means of sheltering investment gains or income from the tax man – especially for higher rate tax payers.

People need to maximise the use of their individual savings account (ISA) and other tax efficient allowances, which cannot be carried forward.

ISAs also have a role to play as a more flexible approach to pension funding for basic rate tax payers.

The annual ISA allowance is a maximum £7,000, which can be paid into a stocks and shares ISA, or split between a stocks and shares and cash ISA (£4,000 and £3,000 each).

As ISAs are tax-free vehicles, no tax is charged on investment returns other than tax withheld on dividend payments.

For the tax year 2008-09 the overall level for ISAs will rise to £7,200 and up to £3,600 can be held in cash.

PENSIONS

As people come to terms with the impact of pension simplification and the ability to contribute up to 100 per cent of earned income in a tax year, for an individual this clearly gives greater scope for funding pensions as cashflow permits.

Anyone with large amounts of spare cash should consider making full use of the annual contribution allowance of up to 100 per cent of qualifying earnings, up to £225,000, less any contributions already paid by yourself or your employer.

For really high earners or shareholding directors of profitable companies the ability to make pension contributions of up to £225,000 does afford them the ability to accumulate meaningful pension funds over a relatively short period of time.

This scope clearly has its advantages if the business is currently going well but the outlook isn’t certain.

For further information, contact Graham Gordon, partner and head of financial planning at Moore and Smalley Chartered Accountants and Business Advisors, on 01772 821021.