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Review your investments before April 5

By Raymond Mulligan

Q: With the tax year coming to an end what things should I be planning for?

A: It is hard to believe that the tax year end, which is April 5, is almost upon us. Many companies also set their financial year end for that date, so it is doubly important from a planning perspective.

As an individual, the impending tax year end offers an ideal time to review your affairs to ensure you have planned well from a tax perspective, utilising as many opportunities as you can.

From a savings and investment perspective it is important that you ensure you have fully utilised your ISA (Individual Savings Account).

By holding money within an ISA wrapper, you will avoid any capital gains tax and greatly reduce any income tax arising from the interest it generates.

A few years ago the government announced some changes around ISAs in an attempt to simplify them. Up until that point an individual was allowed to have a mini and maxi ISA.

The difference in the two largely centered on whether or not the investment was held in cash or the stock market. Confusion reigned with many people misunderstanding the differences and indeed how much they could invest in each.

The simplification means that there is in effect only one type of ISA and an investor can contribute up to £7,200 each tax year into such a plan.

If you only intend to keep the investment in cash, then the maximum that can be invested is half of the full sum — £3,600.

As well as considering your options of making an investment this year into an ISA, you should also take this opportunity to review any existing ISAs you have to ensure you are getting the best rate possible, particularly if the majority of your ISA investments are held in cash.

Interest rates, as we all know too well, have come down dramatically and as a result the rates the various banks and building societies are paying have also substantially reduced.

There is however still a wide variation on the rates available and you should shop around to ensure your rate is competitive.

If you have been investing your ISAs in stocks and shares, then again you should review their performance and ensure the investment mirrors your overall attitude to risk, and the funds that you have selected are performing well within their sector.

Over and above your traditional savings and investments, the tax year end offers the opportunity to potentially save some income tax by considering a pension investment.

If you pay tax at the highest rate, then this will be even more attractive as any investment now will save you tax in January of next year.

Indeed, if you are just into the highest rate of tax, then by making a pension contribution, you may be successful in reducing your overall tax burden back to basic rate.

Any pension contribution is automatically credited with basic rate tax relief.

This means that for every £80 invested, a further £20 is automatically credited.

This has the impact of giving you an immediate 25% uplift on your investment, a welcome boost in the current climate.

If you are a higher rate tax payer then whatever amount you invest will need to be recorded on your tax return and you will be given the relief either via a refund or an increased tax code.

As with any matters relating to tax or investing, you should seek out the advice from a professional who will be able to guide and advise you on the best routes open to you.

Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact or (028) 9022 1010.

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