Feature Article

With Christmas now just a distant memory, what do we have to look forward to in the coming months until the Easter rabbit calls? But if you've already had too much of crème eggs and chocolate bunnies, how about looking forward to making use of your unused tax allowances.

'Looking forward to' and 'tax' are phrases very rarely found in the same sentence. But we have good reason to in this case. Tax allowances are akin to gifts from the government, which all too often get forgotten about, until it's too late. In 2010, £15 billion was lost to the tax man in unused ISA allowances alone (1). In times of austerity, that's a costly mistake.

So we thought we'd take a look at three tax allowances you can very easily benefit from.

Firstly, Individual Savings Accounts (ISAs). ISAs come in two varieties - Cash ISAs and Stocks and Shares ISAs. Your ISA tax allowance is (in the current tax year) £10,680, meaning you can pay in up to £10,680 this side of April 5th as long as you meet a few requirements.

If you're a UK resident, aged 16 or over, you can pay in £5,340 to the cash variety of ISA each tax year (the tax year runs from April to April). Any money held within your cash ISA accumulates interest without any tax being charged, unlike bank accounts.

If you're a UK resident aged 18 or over, you can also invest in a Stocks and Shares ISA. You can pay in another £5,340 to a Stocks and Shares ISA, or if you haven't used your cash ISA allowance you can pay in the full amount of £10,680. Just like the cash version, any gains or income from your Stocks and Shares ISA won't face any tax charges.

Remember - your ISA allowance is lost at the end of each tax year, so if you don't use it, you lose it!

Next, capital gains tax (CGT) allowances. Up until April 5th 2012, we can make capital gains of up to £10,600 without incurring any tax. After April 5th, a new tax year starts, and we all get a new allowance. What you can't do is 'roll over' any unused allowance from the previous year.

In our experience, the CGT allowance seems to be one of the most under-used allowances, but it's still a very useful one. It allows you to realise any gains on any investments that you've held without the benefit of a tax wrapper (like an ISA). For example, the shares you bought years ago that now appear to be worth a nice little amount could be cashed in within your capital gains allowance without you having to pay any tax.

Calculations for CGT can be on the complex side, however, so we always recommend employing the services of an accountant as well as your financial adviser to make sure you don't lose out.

While discussing tax allowances, it is always worth taking a longer term look and thinking ahead towards pension and retirement planning. As an incentive to plan for retirement the government offers 'tax relief' on pension contributions, which, putting it simply, is extra money that the government adds to payments you make into a pension scheme.

Even if you aren't in paid employment, you can still qualify for this relief and are allowed to pay in £2,880 from your own pocket to a pension scheme. Tax relief is added to this amount and turns your contribution into £3,600 immediately. That's the easiest 20% return you are ever likely to make.

An independent financial adviser will have access to the best ISA and Pension schemes and will be able to offer a detailed report as to the suitability of such arrangements for you. So just like the tax allowances, an IFA is worth utilising as part of your financial planning strategy.

For a free and confidential discussion about buying an annuity, call Chris Rowe on 0845 230 9876, email us or take a look at our website