The old tax year ends on the 5th April and there follows some stuff that should be considered before the start of the new tax year.
Market Commentary
Household disposable income falling, increasing demands for wage rises. Small hike in interest rates but figures unlikely to approach historic levels. Putin (see p.s. bit).
Planning Ahead
The tax year runs from April to April and allowances change every tax year. Rushing stuff leads to mistakes and we prefer to avoid the panicked calls that we get every March; here is a brief list:
ISA’s: These were born in 1999 and the amount that can be invested is now £20,000 per person. This is generous. Those of you that are our clients will be receiving forms from us every year that, when signed and returned, will automatically utilize your ISA allowances. Those of you who are not clients should take action. Cash ISA’s, even though they do not offer high returns, still secure your ISA allowances for better years or to allow transfers to Stocks and Shares ISA’s in future. Use or lose.
Lifetime ISA’s. For our younger readers (under age 40) these allow you to save up to £4,000 per year until you are 50 and get 25% on top from HMG when you buy a house for the first time or when you get to age 60.
Pensions: Personal pensions tax treatment is almost too good to be true. PP’s can be funded by you or your company. Currently you can withdraw the whole lot at age 55, although this is rising to age 57. If you die before 75, they pay out tax free. Even after age 75 anything not drawn when you snuff it can go to your kids. Generally, pension funds are free of Inheritance Tax (IHT). The amounts that can be invested in pensions have been reduced considerably in recent years and are likely to be further reduced in future budgets. Buy now while stocks last choosing providers wisely.
Investments: take profits using Capital Gains Tax (CGT) annual allowances. You have an individual CGT allowance of £12,300 per person, selling and re-investing the proceeds (within the rules) means that there will be less tax to pay in the future.
Inheritance Tax: Said to be paid by those who distrust their kids more than they dislike the taxman. IHT is levied mainly at 40% and with inheritances and rises in the values of properties and investments many estates will pay this tax. There are various IHT mitigation options with the easiest being to give money or assets away whilst trying to stay alive for 7 years.
Savings and Dividend income: Surprisingly the tax-free dividend allowance has for now been left at £2,000. The Personal Savings Allowance is £1,000 per year for basic rate taxpayers and £500 for higher rate taxpayers.
Summary
The amounts that can be tax sheltered are generous and the allowances available all add up. Even losing money can be used as a tool to save tax (although in our experience this is not popular). The starting point for all planning is to organise information in a readable format and we have a basic spreadsheet that is designed to show all of a client’s assets, liabilities, income and expenditure on one sheet - contact us if you would like a copy.
p.s.
Covid becomes ‘Flu…. Risk perception is interesting. What is the world’s deadliest animal when it comes to killing humans? Most people intuitively think of lions, tigers etc. In reality though, it is the tiny mosquito that does the most damage. It causes more deaths than virtually any other animal; responsible for about 725,000 human deaths annually. Only human beings themselves come close, with a tally of about 425,000. This is a classic example of our tendency as humans to misunderstand risk and is particularly relevant when considering investment risk.
p.p.s.
Markets / Ukraine. Portfolios have been affected but not significantly; stock markets tend to not care about people or politics but focus instead on overall economic effect; markets are not moral. For more commentary please visit the Ukraine Crisis section of our website.