As we approach the end of the tax year on 5 April, it is a good time to review whether you have made full use of the valuable tax allowances available to you.
Many tax allowances operate on a “use it or lose it” basis, meaning that if they are not used before the tax year ends, they cannot be carried forward. For many people, this is one of the most important financial planning deadlines of the year.
Two of the most commonly used allowances we help clients take advantage of are ISA contributions and pension contributions.
ISA Allowance
Each individual has an ISA allowance of £20,000 per tax year. Any growth or income generated within an ISA is completely free from UK income tax and capital gains tax.
For couples, this means up to £40,000 per year can potentially be invested into ISAs.
Over time, consistently using ISA allowances can build a significant pool of tax-efficient wealth, particularly when combined with long-term investment growth.
One useful planning tip many people are unaware of is that you don’t necessarily need to commit immediately to a long-term investment ISA in order to preserve the allowance.
If you are unsure how you want to invest the money yet, you can still use the allowance before the tax year ends by placing funds into an instant access or cash ISA. You can then transfer those funds into an investment ISA later once you have decided on the most appropriate investment strategy.
This allows you to secure the allowance for the current tax year without losing flexibility.
Pension Contributions
Pensions remain one of the most powerful tax planning tools available.
Depending on your circumstances, pension contributions can benefit from:
• Income tax relief on contributions
• Tax-efficient growth within the pension
• Potentially favourable inheritance tax treatment
For higher earners and business owners in particular, pensions can be an extremely effective way to convert taxable income into long-term wealth.
Should You Prioritise an ISA or a Pension?
A question we are often asked at this time of year is whether someone should prioritise ISA contributions or pension contributions.
The answer depends on factors such as your income level, tax position, access requirements and long-term goals.
To help explain this clearly, we recently released a video breaking down the key differences between ISAs and pensions and how they can work together within a financial plan.
You can watch the video here:
The video explains when each option may be more suitable and why, in many cases, a combination of both can form the most effective long-term strategy.
Why Planning Before the Deadline Matters
In the weeks leading up to the tax year end, providers and platforms often experience a significant increase in processing volumes.
To ensure we have enough time to arrange contributions and implement any planning properly, we would encourage clients who are considering ISA or pension top-ups to let us know by mid March where possible. This helps ensure we have enough time to review your position, make recommendations where appropriate and complete the necessary transactions before the tax year deadline.
This gives us time to:
• Review your current position
• Confirm contribution limits and eligibility
• Arrange investments in an orderly way before the tax year closes
If You Would Like to Review Your Position
If you would like to discuss making ISA or pension contributions before the end of the tax year, please feel free to contact our team at service@claritywealth.co.uk and we would be happy to help.
Even if you are unsure whether you have used your allowances or how much you may still be able to contribute, we can review your position and guide you through the options available.
As always, our aim is to help ensure your financial plan remains tax efficient, structured and aligned with your long-term goals.
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