Tax-Year End? Don’t Forget Tax-Year Beginning

12/04/2018

Maximising the amount of time you are invested for can make a notable difference to the investment value.

The examples below are based on the UT Mixed Investment 40-85% Shares sector, and show the amount of additional growth you could have benefitted from if invested on 6 April (the beginning of the tax year), versus investment on 5 April (the end of the same tax year), over a five year period.

ISA

Investing early (6 April) 
value after 5 years 
   Investing late (5   April)
value after 5 years
Tax year

ISA contribution

2013/14

£11,520

£92,841*

£87,134**

2014/15

£15,000

2015/16

£15,240

2016/17

£15,240

2017/18

£20,000

Value created by investing early

£5,707

 

PENSION

Investing early (6 April)
 value after 5 years 
Investing late (5 April)
value after 5 years
Tax year
Pension contribution

2013/14

50,000

£258,826*

£242,514**

2014/15

40,000

2015/16

40,000

2016/17

40,000

2017/18

40,000

Value created by investing early

£16,312

The ISA allowance remains at a generous £20,000, making the impact of investing early even more important.

 Gone are the days when the annual pension allowance was hundreds of thousands of pounds. With the ordinary annual allowance reduced to £40,000 from 6 April 2014, we’ve since seen the introduction of the tapered annual allowance (a reduced allowance for high earners) and the money purchase annual allowance or ‘MPAA’ (a reduced allowance for money purchase pension savings for people who have ‘flexibly accessed’ their money purchase pension) – designed to restrict the amount that can be paid into pensions.

For the 2017/18 tax year and each subsequent tax year the MPAA for the tax year is £4,000.

It’s important to understand that if the MPAA is triggered part-way through a tax year, only the contributions made on/after the trigger date count toward the MPAA restriction.

With these rules strangling people’s ability to pay pension contributions, the clear message is don’t delay in making the most of the current allowances before something happens (like the MPAA being triggered) and give your pensions the best possible opportunity to grow.

*Value at 14 March 2018.

**Value at 14 March 2018. For the 2017/18 tax year, the £20,000 contribution is added to the investment value as at 14 March 2018.

Based on data up until 14 March 2018. Past performance is not a guide to the future. 

If you would like more information, please contact us >>

Written by Colin Caulfield | Director

Colin is a Chartered Financial Planner & Pension Adviser Of the Year Read more >>

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