From the Bellpenny Nest
In these uncertain times, it pays to be as efficient as possible, but how many of us can honestly say that without the assistance of your Financial Planner your investments are working as hard as they could?
Now is the perfect moment to do something about it. That’s because the end of the tax year is looming and there are numerous ways to keep your hard-earned cash away from the taxman and working more on your behalf.
If you haven’t already sitting down with your Bellpenny Financial Planner will enable you to review your savings outlook, appetite for risk and consider the impact that any recent changes in government legislation have had on your personal financial landscape.
There’s plenty to catch up on. Here are some of the recent highlights:
At this stage of the financial year, the priority for everyone is to make the full use of their ISA allowance for the current tax period.
For those with General Investment Accounts (GIA) or unit trusts, this might mean using some of their capital gains allowance and feeding it into an ISA. Remember that the capital gains allowance will be lost if it is not used.
The wider range of ISAs, such as the LISA or Help-to-Buy, may also present opportunities to gift funds to help out younger family members.
Planning for a rainy day
Meanwhile, planning for the new tax year you should consider how to use the enhanced ISA allowance of £20,000 from April 2017. The ISA wrapper is per individual so a married couple can put up to £40,000 into ISAs in the forthcoming tax year.
With Cash ISAs rates so low, it’s critical to shop around and to avoid the ultra low rates imposed at the end of introductory years on some products.
Despite these issues, it makes sense to hold some savings in cash. Even those happy to invest in shares and bonds need to keep some of their funds close at hand for a rainy day.
That’s why a Cash ISA forms the base of the investment pyramid.
Equity ISAs feature next, with the top of the pyramid represented by about 5% of riskier, more speculative investments. Sandwiched in between these two should be your retirement pot.
Pension investors now have much greater freedom over how they can take their benefits once they reach the age of 55, including lump sum withdrawals.
You should remember the old adage that just because they can do something, doesn’t necessarily mean they should. Taking pension benefits is one of the most significant financial decisions you will ever make.
It may well be in your best interests to leave money within the pension for as long as possible, simply because pensions are arguably the most tax-efficient form of investment there is in the UK. Why access tax-efficient investments if you have less tax-efficient funds available?
The pensions trap is highlighted by the allowance for tax-free top-ups, which falls from £40,000 to £10,000 if you have flexibly accessed your pension for income. Even worse, this rate is set to fall to £4,000 in April 2017, subject to a government consultation on the Money Purchase Annual Allowance (MPAA).
Other allowances worth knowing about include the Transferable Marriage Allowance. This perk allows non-tax payers to transfer 10% of their annual personal allowance of £11,000 to their husband, wife or civil partner if they are earning more than them.
As long as the spouse or partner is not a higher rate taxpayer, the transfer of £1,060 will reduce their tax bill by up to £220 in the current tax year. It’s also possible to back date claims to April 6, 2015. It’s a tidy sum but, according to recent figures, one that few appear to have taken up.
Speaking to your Bellpenny Financial Planner can help you to spot these opportunities and ensure your investments are performing at their optimum level. It’s also important to review any changes in your own circumstances so that your finances are correctly geared towards meeting your long-term aims.