Factors to consider optimising in a tax year include your use of valuable annual allowances; capital gains ’harvesting’; your investment strategy; mortgage situation; and estate planning options. But how does this work in practice? And which easy wins can give your wealth-building strategy a leg up?
ISA/pension allowances
Tax wrappers are a key ingredient in any financial plan. But it’s important to fully optimise annual allowances. UK adults can pay up to £20,000 annually into flexible ISAs, with any gains exempt from tax. Higher earners may wish to consider upping pension contributions to boost their retirement pot. Most people can pay £60,000 annually into a pension, while those with unused annual allowances from the prior three tax years may be able to pay in a larger sum via carry forward.
Paying into pensions and ISAs at the start of each tax year, rather than the end, can be very beneficial over time, as your investments have more time to grow.
Harvesting your investment gains
Gains on investment accounts or products held outside of tax wrappers may be subject to capital gains tax, if gains exceed the annual capital gains allowance. Basic rate taxpayers see investment gains taxed at 10%, while higher and additional rate taxpayers pay 20%. Each adult currently benefits from a capital gains tax Annual Exempt Amount of £3,000. This allowance needs to be used before 6 April 2025.
Review your investment strategy
The start of a new tax year is a good time to conduct a thorough investment strategy review. Does your asset mix align with your latest goals and circumstances? How does your performance compare against benchmarks? Are excessive fees/all-in costs hampering your returns? Setting – and sticking to – a long-term strategy is the key to success.
Mortgages
It’s important to plan ahead if your mortgage is up for renewal. A good mortgage broker will provide a rate monitoring service, whereby they will switch you to a cheaper deal if the lender rate improves before your mortgage term starts. This can apply to both a new property purchase, or remortgaging on your existing home.
Estate planning
Many families put off this important issue, due to the emotional difficulties involved. Frozen nil/residential rate band thresholds and house price growth mean that more people are at risk of seeing a larger proportion of their estate face an inheritance tax (IHT) charge. Getting on top of your estate planning at an early stage can mitigate a large IHT liability.
If you would like to discuss your options for the tax year, and how this can form part of an overall financial plan, please call 03300 564 446, or get in touch via our contact form.
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.
