This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at Elmfield Financial Planning in Blackburn, Halifax and Burnley, Lancashire.
March is often a stressful time for people as they approach the end of the tax year in April. Indeed, our financial advisers often hear regrets from people across Lancashire, wishing they’d acted sooner and maximised the tax benefits open to them. If this is the case for you, then why not start planning for the 2021 April deadline now? Your investments, savings and emotions will thank you later! We hope this content aids your thinking on these important matters. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
Individual Savings Accounts (ISAs)
The UK tax year runs every 12 months, from April to April. It is human nature for many of us to leave things to the last minute. Yet this often results in an inability to take full advantage of some attractive ISA benefits.
At the time of writing, the tax rules allow you to save up to £20,000 per tax year into your ISA(s). Moreover, any money you commit to these tax-efficient “wrappers” will shield your savings and investments from taxes on your interest, capital gains and dividends. Unfortunately, once the 6th of April arrives this £20,000 allowance for the tax year expires. It will not be possible to carry any unused allowance forward into the next year.
By planning ahead, however, it becomes more possible to make full use of your allowance for the tax year. By committing some savings to your ISAs every month, for instance, you help prevent any last-minute rushes for capital in March, which might be tied up in other investments elsewhere. It’s certainly worthwhile to try and leverage your ISAs by consulting with your financial adviser. Consider, for instance, that up to £200,000-worth of savings and investments could be committed to ISAs over 10 years if you made full use of your allowances, and shielded from tax (assuming the tax rules stay the same).
As financial advisers here in Lancashire, we deal regularly with pensions and recognise the important role they typically play in retirement planning. It’s also true that whilst many people delay saving for retirement, the earlier you start the better. Doing so gives your investments more time to make up for losses during down markets, and it allows more opportunity for the power of compound interest to work its magic on growing your pension savings.
Here, one practical way to boost your future retirement income prospects is to make maximum use of your pension allowances within the tax year. At the time of writing, the standard tax-free pension annual allowance is £40,000 per year or 100% of your salary (whichever is lower). Fortunately, with pensions, you are allowed to carry forward unused pension allowances, from the past three years. Therefore, assuming you earn over £40,000 per year, have not triggered the Money Purchase Annual Allowance (MPAA) rules and have not made any pension contributions at all over the last three tax years, you could theoretically put up to £120,000 into your pension within a single tax year.
It’s important to note, however, that the April deadline still represents the cut-off point for any unused allowances from over three years ago. So it’s still a good idea to plan ahead with your financial adviser, and to make full use of the allowance for each tax year (if possible). Bear in mind that the pension rules can make it very worthwhile to save into a pension. For Basic Rate taxpayers, the government will grant 20% tax relief on your contributions; meaning that it only “costs” you £800 to put £1,000 into your pension. For Higher Rate taxpayers the benefits are even more attractive at 40% tax relief.
The allowances above are two crucial ones our financial advisers often discuss with clients in and around Padiham, Blackburn, Ribble Valley and Rossendale Valley. However, there is a range of other tax allowances available for the tax year which can make it very worthwhile to plan in advance. For instance:
- Personal Savings Allowance. This allows you to accrue up to £1,000 in interest per tax year (outside your ISAs) before it is liable to tax.
- Dividend allowance. Up to £2,000 in dividend income can be received before it faces tax.
- Capital gains tax. In 2020-21 the tax-free capital gains tax (CGT) allowance is £12,300. This the maximum profit you can sell an asset for before it becomes liable to tax. Please note that your main residence does not come under these rules, as it does not face CGT.
If you are interested in starting a conversation about your financial plan, then we’d love to hear from you. Get in touch to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire. Reach us via:
T: 01282 772938