Seven tips for beating the tax year deadline
It is human nature to leave important decisions to the last minute and with the 5 April tax year deadline just days away, it is decision time for investors contemplating a contribution to an ISA, pension or investment into other schemes with annual allowances such as venture capital trusts.
Yet each year a handful of investors fail to beat the deadline, losing out on valuable tax-efficient allowances because of errors on their application, banking complications or postal delays.
This year, 'eleventh-hour' investors face the additional challenge of a long easter bank holiday weekend on the eve of the deadline and an unusually cold weather spell, which is playing havoc with the postal system.
1. ISAs and pensions
Act fast to make your contribution, but don't hurry to select your investments.
A rushed decision on which asset class, market or fund to invest in could back fire and it always makes sense to take these decisions having first reviewed your existing investments and strategy.
If you feel you need more time but don't want to lose your allowance, then open your stocks and shares ISA or contribute to a self-invested personal pension with an initial holding in cash.
Having secured your allowance, you can then invest it later when you are comfortable with your investment choices.
Investing in a series of lump sums will also help reduce the risk of getting your market timing wrong.
2. Invest online
Avoid the postal service and invest online if possible. The postal service can be unreliable and this is particularly the case when parts of the country are covered in snow.
The last few days of the tax year mean big business for courier firms and in the past some advisers have even chartered helicopters to ensure client applications reached plan managers on time.
These days, things are less dramatic as the simplest and lowest cost way to invest in an ISA or pension at the eleventh hour is to do so online.
3. Special delivery service
If you do use the post, use the special delivery service or a courier. Some investments, such as VCT applications, are not available for online applications and can only be submitted by paper based forms.
To maximise your chances of making a successful application, it makes sense to either use a courier or the Royal Mail's special delivery service. The latter commits to next day delivery with online tracking.
Do not use free reply-paid envelopes during the final days of the tax year as these typically take longer than normal mail.
If you are investing in a VCT then check remaining capacity before you send your application.
VCTs and other limited capacity investments can fill up rapidly in the final days of the tax year, so it always makes sense to check how close a VCT is to achieving its fund raising target before submitting your application in case it is returned and in the meantime you miss out on other opportunities, or the deadline altogether.
5. Cleared funds
Make sure you have cleared funds in your account as you cannot invest with a credit card.
When investing online, it is vital that you have cleared funds in your bank account as you must purchase an ISA with a debit card and cannot use a credit card.
For investors hoping to beat the deadline, this may mean moving funds a couple of days ahead – so act now. Bank fraud departments can sometimes block unusually large transactions, so it may make sense to inform your bank ahead of making your application.
6. UK bank account
Payment must be from a UK bank account in the name of the applicant (or joint account).
A friend, relative or company cannot open an ISA on your behalf, so it is important that the payment is made with a debit card in the name of the applicant (or parent/guardian in the case of a Junior ISA) as this will form part of the identification checking process required under anti-money laundering regulations.
If you are making a paper-based application and intend to use a building society cheque, then ask your building society to include your name on the cheque or your application may be rejected.
7. National Insurance number
Make sure you know your national insurance number. An NI number is required to open an ISA. If you don't know your number, this can usually be found on your pay-slip.
There is an old saying that in life 'nothing is certain but death and taxes' and in the current environment high taxes are set to remain for a long time. It therefore really does make sense to utilise important tax-efficient allowances if you possibly can.
ISAs and pensions are 'use them' or 'lose them' allowances, so investors need to act without further delay to beat the deadline.
Jason Hollands is managing director of communications and business development at Bestinvest
This feature was written for our sister website Money Observer
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Venture Capital Trusts were introduced in 1995 to encourage private investments in the small-company sector by offering tax relief in return for a minimum investment commitment of five years. A VCT is a company, run by a fund manager, which invests in other companies with assets of no more than £7m that are unlisted (not quoted on a recognised stock exchange) but may be listed on the Alternative Investment Market (AIM) or plus with the aim of growing the companies and selling them or launching them on the stock market. Investors in new VCTs are offered desirable tax advantages and VCTs themselves are listed on the London Stock Exchange, with strict limits laid down by HM Revenue and Customs on what they can invest in and how much they can invest.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.