Tax rule changes affecting ISAs and PEPs are the most far-reaching since ISAs were introduced in 1999. Here's a checklist of what's new with the commencement of the new tax year on Sunday, 6th April:
- The ISA allowance has risen from £7,000 to £7,200.
- The Maxi and Mini ISAs distinction has been removed. You can now invest up to £7,200 in a Stocks and Shares ISA, or up to £3,600 in a Cash ISA with the balance (up to £7,200) in a Stocks & Shares ISA.
- PEPs have become Stocks & Shares ISAs.
- Mini Cash ISAs and TOISAs have become Cash ISAs.
- Maxi & Mini Stocks & Shares ISAs have become simply Stocks & Shares ISAs.
- There is a small change to the way interest on cash held within old PEPs is taxed but the most important tax benefits remain. ISAs and old PEPs remain free of income and capital gains tax - and we believe this means they should remain an essential part of most investors' portfolios.
If you hold your investments outside HL, bringing them into the Vantage Service could save you time and, with annual loyalty bonuses of up to 0.5% a year, it could also save you money.
SIPPs - Tax relief in the new tax year
Basic rate tax relief, which is added automatically to your SIPP (Self Invested Personal Pension) contributions, reduced from 22% to 20% on 6 th April. This means that to contribute £10,000 to your SIPP you would write a cheque for £8,000. That compares to £7,800 last year - although for most people the actual effect is neutral because they are paying 2% less basic rate tax.
Higher rate taxpayers can claim any higher rate tax they are owed via their tax return or local tax office - up to a further £2,000 in this example, rather than £1,800 which could have been claimed back outside of the pension last tax year. Therefore if you are a higher rate taxpayer £10,000 invested in a SIPP will still effectively cost you as little as £6,000. Examples of how the tax relief works can be found here.
Each year you can contribute as much as you earn across all your pensions. Last year this was effectively capped at £225,000. The figure this tax year is £235,000.
The lifetime allowance, the amount you can have in all your pensions at retirement without incurring a hefty tax charge, has also risen from £1.6 million to £1.65 million.
If you have no earnings you are only able to contribute £3,600, owing to the change in basic rate tax, you will now need to write out a cheque for £2,880.
