Peering into the crystal ball

However, a period of planning will not exist if some or all of the changes are made with immediate effect. Nevertheless, we all as investors have an advantage, we know what the current rates and allowances are, and they will apply until at least 30^th October. Therefore, we can treat this date as a deadline i.e. an interim tax year end.

The run up to the tax year end of 5^th April i.e. February and March, is a busy time with individuals making decisions and investments, such as:

• Utilising ISA allowances
• Making significant pension contributions
• Crystallising Capital Gains Tax allowances

I am not suggesting for a moment that individuals borrow or use funds from  sources earmarked for other expenditure.  But people often have an idea of what they are going to do at the end of the financial year based primarily on previous years and may indeed already have funds available. So why not make those investments now?

Pension personal contributions

It has been suggested that full tax relief on personal pension contributions may be withdrawn for Higher (40%) and Additional Rate (45%) taxpayers restricting it to basic rate tax relief only [2]. On the premise that the Government has stated that it will not increase income tax then it may be appropriate to consider bringing forward planned or potential pension contributions now in anticipation of the withdrawal of the higher rates of relief.

Carry forward allowance for pension contributions

In addition, there is also the facility to utilise the carry forward allowance by using up any unused allowances from the 3 previous years, again taking advantage of any available Higher and Additional tax relief. [3]

Clearly any contribution made must be made on the basis that sufficient “relevant earnings” have been incurred or on course to be achieved. The current annual allowance (£60,000) also needs to be fully utilised before carry forward can be used.

(Please note that this is not a consideration for pension contributions that will only be subject to Basic Rate tax relief.)

ISA allowance

If you generally wait until the end of the tax year to utilise your ISA allowance, perhaps it would be prudent to consider making the investment now.[4] If the allowance of £20,000 is increased in the forthcoming budget, you are unlikely to miss out on the “extra allowance” because you have already contributed £20,000. Should the allowance be reduced well you have utilised the higher allowance while it was available.

Capital gains tax

Currently the annual allowance for gains on the disposal of assets is £3,000. If you are considering selling any assets that will have gains falling within the allowance, now may be a good time to make disposals, before any potential reductions in the allowance.

Furthermore, gains arising from the sale of assets within arrangements such as General Investment Accounts could be used towards any unused ISA allowance.

Inheritance tax

A small but often overlooked allowance relating to inheritance tax is the annual gifting exemption of £3,000. An individual can give away a total of £3,000 worth of gifts each tax year without being subject to the 7-year rule and thus the monies leave their estate immediately. [5]

It is also possible to use any unused annual exemption from the previous tax year. Therefore, an individual can make gifts up to the value of £6,000 in the current tax year.   For a couple this could be as much as £12,000 between them.

If the annual exemption is increased, then you have simply already gifted £12,000 and can use the rest of the allowance.

How will the existing provision be treated

It is important to note that when allowances and tax rates are changed existing provision is usually untouched.

For example, when ISAs were introduced in 1999, they replaced Personal Equity Plans (PEPS) and Tax-Exempt Special Savings Accounts (TESSAs), while it was not possible to make any further contributions to these arrangements the tax efficient benefits still applied.

In 2006 with the introduction of Pension Simplification the level of benefits individuals could have within their pension was limited to the Lifetime Allowance (LTA). However, individuals who had pension benefits above the LTA could protect their pension by applying for Enhanced or Primary Protection, so they did not have to pay any excess tax charges on exceeding the LTA when taking benefits.

While the LTA did increase over time it was continually reduced and, in such circumstances, individuals could apply for individual or fixed protection to protect their existing provision.

So, while there may be significant changes applied in the forthcoming budget, it is unlikely that they will be made retrospectively on existing provision in place.

Making decision

While I do not suggest making significant financial decisions based on speculation about potential changes, I do encourage individuals to review and, if appropriate, consider bringing forward planned financial decisions before the budget that they would have otherwise made over the course of the year or in the run up to the end of the tax year, taking advantage of the current allowances and rates that currently apply.

I would of course urge anyone who is considering making any investment decisions before the budget to seek professional financial advice.