Ask our Expert: How to achieve tax savings


Lumin Managing Director Martin Cotter highlights key tax-saving measures that consumers can implement, including how to optimise pension and ISA annual allowances, and the benefits of capital gains ‘harvesting’.

How much should I pay into my pension this tax year?

This is a question we are frequently asked by clients. Earners can pay in up to £40,000 each year and benefit from tax relief. This amount is known as the pension annual allowance. Contributions for non-earners are limited to £3,600. Certain taxpayers may be able to make additional contributions by ‘carrying forward’ unused annual allowances from prior tax years. Various rules apply, but crucially you can only carry forward from the three previous tax years. This means any unused annual allowance from 2019/20 must be used before 5 April 2023, or it will be permanently lost.

Should I continue contributions if I have a lifetime allowance problem?

I will start with a caveat. The pension lifetime allowance is a complicated area of tax planning, and we recommend that you seek professional advice. We come across plenty of employed people with large pots who consider opting out from their pension plan, in order to avoid breaching the £1,073,100 limit and being hit by an excess tax charge. However, the benefits of employer contributions and tax relief mean that higher/additional rate taxpayers may be better off continuing payments, even when factoring in a tax charge.

As the example of a higher rate taxpayer below shows, continuing pension contributions would see them achieve a total gain of £10,150 on a one-off £5,000 contribution (matched by an employer) after 20 years, even if a 25% LTA excess charge was applied. Remember that a pension doesn’t form part of your estate, so is also a valuable inheritance tax planning tool in its own right.

Should I maximise ISA contributions over paying into a GIA?

The short answer is yes. General investment accounts (GIAs) have their place – they can be accessed flexibly and there is no limit on the amount you can pay in. But, crucially, they don’t benefit from the same tax-free privileges as ISAs. Any gains on investments held in an ISA wrapper are exempt from income tax and Capital Gains Tax. It’s always prudent to pay into an ISA before contributing to a GIA, given that the annual ISA allowance of £20,000 operates on a ‘use it or lose it basis’.

What is capital gains ‘harvesting’, and how can this help cut my tax bill?

Capital Gains Tax (CGT) is a tax on the profit when you sell, or dispose of, an asset that has increased in value. CGT applies to investment portfolios – basic rate taxpayers will pay 10% on gains, while higher/additional rate taxpayers pay 20%. However, by actively managing an investment portfolio and applying your CGT Annual Exempt Amount (AEA) of £12,300 each year – a process known as CGT harvesting – you can make significant tax savings. The AEA is lost forever if it is not used in the relevant tax year. At Lumin we implement a CGT harvesting process for each client, making use of the annual exemption to offset gains made on investments held in our model portfolios.

Should I contribute to my pension ahead of my ISA?

Pensions and ISAs both provide a valuable shelter against income tax and Capital Gains Tax, but there are some important differences. Investment ISAs may be easily accessible, as opposed to pensions, which are typically ringfenced until age 55. Pensions do not form part of the estate for inheritance tax (IHT) purposes, whereas ISAs may be subject to IHT, unless left to a spouse/civil partner. Marginal rate income tax applies to pension withdrawals (25% can be taken tax-free), whereas withdrawals from ISAs are not subject to a tax charge. The interplay between ISAs and pensions can be complex, and is dependent on individual circumstances, so do get in touch if you would like to discuss your options.

Would you like to arrange a free initial meeting with Martin Cotter to discuss your tax planning, or wider financial planning and investment opportunities? If so please email Martin at, or call 03300 564 446.