It can be unsettling, but it’s important not to let short-term distractions put you off taking the necessary steps to secure your long-term financial health.
Those steps include taking early advantage of the tax-planning and investment opportunities presented by a new tax year.
The annual ISA allowance of £20,000 is unchanged for this tax year, but still presents a generous and flexible opportunity to create tax-efficient capital and income for the future. But it needs to be invested wisely to give you the chance to make the most of the long-term tax benefits on offer. Cash ISA rates may be inching up from record lows, but no account pays a rate that achieves the basic objective of keeping pace with inflation. ¹
The sooner in the tax year you invest your ISA allowance, the longer your money has the opportunity to grow tax-free.
Other than a small increase in the lifetime allowance to £1,030,000, the government resisted further pension changes in April. However, higher rates of tax relief on pension contributions remain in the spotlight as the Treasury grapples with the annual cost of providing tax relief, which has risen to over £50 billion² and a potential funding crisis for the State Pension.
Whatever happens, pension tax breaks for high earners are unlikely to become more attractive, so it makes sense to take advantage of current rates of tax relief while they are still available. A pension is still the most tax-effective way to help create future financial security.
April saw the tax-free Dividend Allowance reduce from £5,000 to £2,000, underlining the need to ensure that as much of your investment income as possible is sheltered in tax-efficient wrappers such as ISAs and pensions.
The annual Capital Gains Tax allowance is often overlooked, but has risen from £11,300 to £11,700 and provides a valuable opportunity for individuals to transfer assets into more tax-efficient solutions.
Despite an increase in the residence nil-rate band to £125,000 from April, the Office for Budget Responsibility expects Inheritance Tax revenues to rise to £5.2 billion in the 2018/19 tax year and surge to £6.2 billion by 2021/223.
Yet with a new tax year come new opportunities to reduce the eventual tax bill on your estate and ensure that more of your wealth stays in the family. That may be through making early use of your annual gifting allowance of £3,000. Remember that last tax year’s allowance is still available if you didn’t use it. The Junior ISA allowance has risen to £4,260 from April and provides an ideal and tax-efficient gifting opportunity to help younger family members with the financial challenges ahead.
By taking advantage of tax-saving investment opportunities early in the tax year you can get your money working harder for longer.
Get in touch to find out how you can make the most of your ISA.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
1 Moneyfacts, March 2018
2 HMRC, Personal Pensions Statistics, February 2018
3 Office for Budget Responsibility, March 2017