We’re only a matter of days into the new tax year and planning early will help to create a map for achieving your goals. Here are our top ten things to be thinking about:
1. Using your ISA allowance
With the new tax year comes a new Individual Savings Account (ISA) allowance. Again, it’s £20,000 that can be shared between Cash and Stocks and Shares ISAs. Free of Capital Gains and Income Tax, they offer an excellent, tax-efficient way to save for the future.
The ISA allowance is a use-it-or-lose-it opportunity, it doesn’t roll over from one year to another, so make sure it doesn’t pass you by. Using your allowance early will also mean you benefit from compound growth throughout the year.
2. Saving for your family
Your children also have a tax-efficient savings allowance in the form of the Junior ISA (JISA). Having the same benefits as your ISA, you can contribute up to £4,260 a year on their behalf.
They take control of the account when they turn 16, but withdrawals aren’t allowed before their 18th birthday. Some JISA providers allow multiple people to make contributions, so it’s a great way for grandparents or other family members to give your children a financial head start.
3. Income Tax is changing
You might remember from the Budget last year; as of April 6th, the Income Tax Personal Allowance is increasing from £11,850 to £12,500. The Higher Rate threshold is rising from £46,350 to £50,000 too. Whilst these changes won’t produce life-changing sums of additional income, it’s welcomed.
If you’ve been to University in the last few years, the threshold for repaying Student Loans is also increasing slightly, meaning a few more pounds in your pocket.
4. Taking Dividend income
Like the Personal Allowance, you have a tax-free Dividend Allowance. As an investor or shareholder in a business, you can receive £2,000 free of Income Tax. Beyond that you will be taxed;
- 7.5% basic-rate
- 32.5% higher-rate
- 38.1% additional rate
5. Topping up your pension
Pensions offer excellent tax-relief and workplace schemes attracting employer contributions really help to boost your potential retirement income. The most you can tax-efficiently contribute is limited by the Annual Allowance; currently the equivalent of your income, up to a maximum of £40,000.
For high-earners with an income over £150,000, the allowance is reduced, making it potentially as low as £10,000. But a rule called Carry Forward lets you utilise unused allowance from the previous three years, so there could be an opportunity to contribute more.
Since Pension Freedoms were introduced in 2015, you can withdraw and spend as much of your pension as you like from age 55. Purchasing an Annuity is still an option, but this increased flexibility makes pension schemes a very attractive long-term savings vehicle. When reviewing your pension, it’s a good idea to check that the person nominated to receive should you die remains relevant, especially if you’ve recently had children, married or divorced.
6. Ensure your insurance policies remain relevant
Your personal circumstances and goals inevitably change over time. An insurance policy for life, critical illness or income protection taken out some time ago may no longer be appropriate. This might be especially true if big life events have taken place recently.
Checking the level of cover offered is adequate and the premiums remain competitive will help secure your financial security should the unexpected happen.
7. Your Capital Gains Tax allowance
You don’t have to pay Capital Gains Tax on qualifying assets with gains up to £12,000 in the new tax year. Called the Annual Exempt Amount, it’s increased from £11,700 in 2018/19. Assets that are jointly owned can use both of your allowances, meaning a potential £24,000 gain can be made in the year without attracting tax.
8. Check your company car tax
Benefits in Kind tax rates are increasing for company cars. The amount applied to the list price of the car will increase based on the CO2 emissions, which is clearly a step in the right direction for inner-city air quality but could prove expensive in some circumstances. If you’d like to check the new rates and expenses payments, you can do so here.
9. Giving gifts & planning for Inheritance Tax
With the right planning in place, Inheritance Tax (IHT) is largely avoidable. Rated the least popular tax of all in the UK, IHT is charged at 40% on the value of your estate above a certain value. In 2019/20 allowances per person are;
- Nil Rate Band – £325,000
- Residence Nil Rate Band – £150,000
Giving a total of £475,000 per person, or £950,000 for a married or civil partnership couple. The value of your assets, including your home, would be liable for IHT above these figures.
Making gifts to loved ones is one of the simplest ways to reduce the value of your estate. The annual gift allowance lets you give up to £3,000, which is immediately outside of your estate for IHT purposes. Unused allowance can be carried over for just one year.
There is also a ‘seven-year rule’, meaning gifts of any value are exempt from IHT if you live for at least seven years of it being given. Or, you can make gifts out of your usual income. There are a number of other ways to mitigate IHT, if you’d like to discuss these in more detail please get in touch.
10. Reviewing your financial plan
Your financial plan isn’t static, it needs to evolve and adapt as you do. Reviewing it at least annually will ensure you are on track to meet your goals and aspirations. This also gives the opportunity to exploit new opportunities and minimise any potential threats.
If in this new tax-year you feel your finances need a review, we are here to give you confidence, reduce stress and help you enjoy life.
The Financial Conduct Authority does not regulate tax planning. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.