Ten things to consider in this new tax year
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.
