Now is the time to hone in on the basics, namely implementing easy tax wins and conducting a review of your finances. There are various factors to consider, including: optimising allowances; capital gains ‘harvesting’; analysing your investment strategy; filling any State Pension National Insurance contribution gaps; reviewing your mortgage strategy; and analysing estate planning options.
ISA and pension allowances
Thousands of pounds can be saved each tax year by doing the basics well. Each adult can contribute £20,000 into an ISA annually. Under-16s have a £9,000 annual allowance, while those who are 16 or 17 can additionally contribute up to £20,000 into an adult cash ISA equivalent. We recommend contributing as soon as you can, as leaving it to the end of each tax year will see you miss out on significant growth over time. Flexible ISAs allow you to withdraw money and replace it during the relevant tax year, without affecting your ISA allowance.
It’s a similar story with pensions. Earners should consider paying in at the start of the tax year (this is not applicable for certain high earners who are subject to a tapered annual allowance) and explore whether they are eligible to ‘carry forward’ any unused annual allowance from previous tax years. Non-earners can contribute up to £2,880 (net) to personal pensions (including children’s personal pensions) and benefit from tax relief.
Harvest investment gains
Each adult benefits from a Capital Gains Tax Annual Exempt Amount of £12,300. This can be used to harvest investment gains annually and avoid or reduce a tax charge. The allowance can’t be carried over, so it must be used before 6 April 2023, or it will be permanently lost. The timing of realising gains (in line with market sentiment) is an important consideration.
Review your investment strategy
Conduct a thorough audit of your investments. Questions to consider include: does your asset mix align with your latest goals and circumstances? How does your performance compare against benchmarks? Are fees hampering your returns? At Lumin we provide complimentary portfolio health checks for those who would like to analyse the performance of their investments.
State Pension: Fill National Insurance gaps
This tax year is the last chance savers have to fill any National Insurance contribution gaps between April 2006 and April 2016. If you have an incomplete National Insurance record over that timeframe, and are a man born after 5 April 1951 or a woman born after 5 April 1953, then paying off contribution gaps by April 2023 might allow you to receive more of your State Pension entitlement.
Mortgages and estate planning
Fixed-rate mortgages often allow for voluntary overpayments of up to 10% of the outstanding mortgage balance, without triggering early repayment charges. Those adopting such a strategy should account for the impact on ISA and/or pension contributions. You should plan re-mortgaging around six months before a fixed rate ends, and review your repayment plan annually.
Finally, is now the time to engage with the estate planning that you may have pushed into the long grass? Estate planning is a valuable tool that allows you to determine solutions to help you save on inheritance tax and provide the right legacy for loved ones.
If you would like to discuss your options for the tax year, and how this can form part of an overall financial plan, call 03300 564 446 to speak to a Lumin expert, or book a free introductory meeting by visiting luminwealth.co.uk/contact.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
