Your IndustryFeb 9 2016

Time to tackle tax year end

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Time to tackle tax year end

The end of the tax year will often be the busiest time for advisers. Trying to ensure clients are taking advantage of the various tax opportunities can be frantic but profitable.

A new tax year is often accompanied by legislative changes, which advisers have to understand, and then adapt their business model to in order to sustain or increase success. While recent legislation such as raising Isa limits has opened doors to generate additional advice fees, others are being closed… perhaps forever.

This coming April will be key for ensuring tax advantages are used. Swirling rumours about further restrictions will no doubt leave an air of dismay about what the future holds for pensions.

It should now be time for the government to let the dust settle before making further adjustments, but the pursuit to radicalise the pension industry seems far from over. Another reduction in the lifetime allowance to a maximum of £750,000 is incomprehensible, seeing as a fund of this size would generate a probable income (assuming the maximum tax free cash is drawn) of around £28,000 per annum. Therefore even the largest of pension funds would not be sufficient to cover the average nursing care fees.

Often a successful calendar year for advisers is underpinned by spring business dealings. The opportunities presented through Isa and pension contributions can feather the nest for the remaining nine months. But previous legislative obstacles have have been put in place which hampered opportunities for advisers and consumers - most notably the special annual allowance, in operation from 2009 to 2011, which restricted tax-relievable contributions to £20,000 for individuals with income exceeding £130,000.

In a somewhat puzzling set of circumstances, people with less income had access to more tax-relievable pension funding. The same issue is currently at stake with the impending annual tapered allowance, although contributions are restricted to £10,000 for income exceeding £210,000.

Discussions around the introduction of a flat-rate tax relief are gathering pace and will no doubt discourage pension saving from those in the higher tax brackets - some of whom will be compiling their accounts now to make the most of the available tax allowances before 6 April. I appreciate that many basic rate taxpayers will benefit from level tax relief and tinkering with pension rules and regulations should be regular and encouraged. But instead of being tinkered with, pensions are being dismantled.

Beyond 6 April those with particularly high incomes will look to other vehicles for tax relief and Venture Capital Trusts (VCTs) may be the greatest beneficiary. They offer an attractive annual limit of £200,000 and with tax relief at 30 per cent, could offer a tailor-made alternative for some investors. Although VCTs can carry severe risks with the possibility that entire funds could be lost, many investors will feel such risk is necessary in the quest for greater tax relief.

So the 2015/2016 tax year may represent the final opportunity to mitigate income tax through sizeable pension contributions. Although this could produce lucrative business for advisers, future years may not be quite so fruitful.