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 please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
The new tax year (2024-25) started on 6 April 2024. This brings a fresh opportunity to get the most out of your allowances and put more hard-earned money back into your pocket.
Below, we discuss some key changes to know about in the new tax year, offering ideas about how to maximise your financial position.
We hope these insights are helpful to you. Please get in touch for more information or to discuss your own financial plan with us.
The State Pension
In 2023-24, the full new State Pension provided £203.85 a week (i.e. £10,600.20 per year). With the arrival of 2024-25, this has increased by 8.5% to £221.20 a week.
This will be welcome news for many of our retired readers. However, be mindful of how your State Pension may impact your tax plan. The tax-free Personal Allowance remains frozen at £12,570 per year. The full new State Pension falls within this threshold at £11,502.4 per year.
However, some individuals may inadvertently enter a higher income tax bracket without careful planning (e.g. due to other pension income taking them over the tax-free limit). Consider consulting a financial adviser to ensure your pension plan aligns with your tax plan.
Changes to tax-free allowances
Every tax year, a UK resident is entitled to earn up to a certain amount in capital gains and dividends without tax (similar to the Personal Allowance for pension income and salaries). However, in 2024-25, these two allowances have been reduced.
The tax-free capital gains tax (CGT) allowance—also called the Annual Exempt Amount—has decreased from £6,000 per year to £3,000 per year. Similarly, the threshold for tax-free dividends has fallen from £1,000 to £500.
This means that investors need to be even more mindful of their tax plans. Taxes, fees and inflation are often the “hidden” eroders of wealth – undermining an investor’s “real” returns. Fortunately, many tax-efficient planning options are still available in 2024-25.
ISAs are likely to become more important this year. An investor can contribute up to £20,000 to their ISAs in total each tax year. The contained savings and investments can earn interest, dividends and capital gains without tax.
As such, by maximising an ISA allowance each year, an investor could conceivably build a sizeable “ISA portfolio” which is shielded from needless tax. Over 10 years, for instance, £200,000 could be contributed (this is setting aside the investment returns potentially generated along the way).
However, be careful not to focus so much on your ISA(s) that you ignore your wider financial plan. For example, it is important to also consider your emergency fund to help buttress your finances if you suddenly face a large expense. Those without any financial protection policies, such as life insurance, may also wish to examine their insurance safety net.
A window closing on pensions?
The UK is widely expected to hold a general election this year. Legally, a poll must be held by 28 January 2025 at the latest. The party manifestos have not yet been published. However, if the Conservatives lose, a new left-leading government may not be friendly to this government’s latest pension policies.
In particular, Chancellor Hunt raised the maximum Annual Allowance to £60,000 in last year’s Spring Budget. For many higher earners, this “widened” the amount of pension contributions they could make each year whilst benefitting from tax relief.
Moreover, the Lifetime Allowance was recently abolished in April 2024. This removes the total tax-free “limit” an individual can hold in their pensions without penalties. However, the future of these two policies is not set in stone.
As such, 2024-25 could be an opportune window of opportunity to maximise your pension plan. Consider speaking with a financial adviser to explore your options.
Inflation and interest rates
The Bank of England recently voted to hold the UK base rate at 5.25% (marking the fifth time). This is partly due to stubborn inflation in the services sector, which employs the majority of the British workforce. Whilst the CPI now stands at an encouraging 3.8%, the CPIH all services index rose by 6.0% in the 12 months to February 2024 (down slightly from 6.1% in January).
These macroeconomic shifts raise some important questions for many households. Should you “lock in” any savings on a fixed-rate deal before interest rates possibly fall later in the year? Should you wait for rates to fall before remortgaging? What about energy prices?
Trying to guess the markets and political decisions is almost always impossible. Rather, it is generally wiser to build a resilient, flexible financial plan to help you navigate many scenarios confidently and with peace of mind. Focus on what you can control rather than what you cannot.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you.
Please contact us 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
E: info@elmfieldfp.co.uk
