It’s been a decade since the financial crisis – yet where’s the recovery? If you’ve ever thought that market shocks were a thing of the past, you’d have been mistaken. From doubt surrounding the impact of Brexit to supply chains and COVID-19, investors are always up against a number of risks at any given time – not to mention unknown factors in the years ahead.
However, we can only ever focus on what’s in our control – unprecedented events such as those mentioned above can’t be allowed to get in the way of planning our financial futures. Rather, we’ll be in with our best chance of meeting our financial goals if we focus our efforts on how and where we invest our money, how much tax we pay, the size of our retirement fund, and how much of our estate passes to our loved ones – free of Inheritance Tax (IHT).
Efficient financial planning should be carried out all year round. Indeed, valuable reliefs and allowances can help to give us and our families that much-desired long-term financial security.
Currently one of the more sought-after ways to save, ISAs are straightforward and readily accessible.
The ISA allowance is £20,000, making it a very popular method in terms of encouraging individuals to invest for their future. But given that UK interest rates are lower than ever, money being held in Cash ISAs is falling short of achieving the fundamental aim of keeping up with inflation – resulting in tangible losses for savers.
Individuals who are investing their ISA allowance for the long term – for example, in assets offering the scope for appealing levels of income and capital growth – stand a better chance of benefitting from the tax-saving opportunities available.
Those who are yet to use their ISA allowance, or who have accumulated ISA savings, need to carefully weigh up their options. This is necessary to ensure that they’re taking full advantage of this worthwhile opportunity to generate tax-efficient capital and income for the future.
Compared to a few years ago, saving into a pension is now rather an attractive prospect. This can be put down to there being much greater freedom for taking benefits, plus pension savings can now be more easily left as part of a tax-free inheritance. On the other hand, the advantages go beyond merely drawing benefits and passing money on to family, as savers still get a government reward in the form of tax relief on their pension contributions.
Depending on certain limitations, for every 80p you contribute to a pension, 20p in tax relief is automatically added by the government. As a higher earner, you can claim extra tax relief through your annual tax return, meaning a £1 pension contribution can effectively cost just 60p.
That said, given that the government is under increasing pressure to reduce public spending, there’s nothing to say that the higher rates of tax relief will be maintained into the future.
Those who are looking to bring their retirement plans to fruition should look to fully utilise their annual allowance for the current tax year so as to maximise on the available tax breaks. Unused allowances can be carried forward from the three previous tax years. This financial year is the last chance for pension savers to use the 2018/19 allowance.
Inheritance Tax (IHT) is known to be both confusing and unpopular.
Thanks to a range of exemptions, individuals are able to reduce future bills. Take the annual gifting allowance, which gives people the opportunity to remove £3,000 of assets from their estate with immediate effect (or £6,000 if they use the previous year’s allowance as well).
Topping up a child’s pension or Junior ISA could be a good way of reducing your taxable estate while giving younger family members an invaluable head start in life. The Junior ISA allowance is £9,000 for the 21/22 tax year. Furthermore, you can make this year’s £3,000 gifting allowance count by carrying forward last year’s – if you haven’t already used it.
At this time of year, individuals and couples are given the chance to get their long-term plans back on track by using reliefs and allowances that would otherwise be lost. Speaking with your financial adviser is your best starting point – with knowledge and expertise on their side, they can help you to gain a better understanding of how you can get the most from this year and the years to come.
For any questions you may have on wealth management, retirement planning or Inheritance Tax planning, contact the Wellesley team on 01444 244551 or email email@example.com.