Rising tax bills and the high cost of living mean it’s more important than ever to take stock of your finances. Taking the time to assess and optimise your financial situation can help reduce tax bills and improve your long-term financial outlook. These five steps and tips are a good starting point:
1. How much can you contribute to your pension plan(s)?
The standard pension annual allowance is £40,000 (this is reduced if adjusted earnings are above £240,000), but ‘carrying forward’ any unused annual allowances from the three previous tax years could allow you to pay a large lump sum into your pension and benefit from tax relief – see table below. You must use the annual allowance in the current tax year first, before using carry forward from prior years. Even if you have no earnings and pay no tax, you can still contribute £3,600 and receive tax relief. If you’ve recently changed jobs you could consider whether you can contribute more to tax-efficient pension plans (and ISAs).
2. Use or lose your ISA allowance
Tax-efficient ISAs benefit from generous annual allowances, with adults able to contribute a maximum of £20,000 into their own account, and up to £9,000 into junior ISAs for children and grandchildren. These allowances can’t be carried over into a new tax year, so savers with remaining allowances may wish to make further contributions before 5 April. Many ISAs are flexible, meaning you can replace any money you have withdrawn in the same tax year, without affecting your annual contribution limit.
3. Pay less tax by harvesting your capital gains
CGT applies when you dispose of chargeable assets, including property that’s not the main home, and most personal possessions worth more than £6,000. It also applies to the majority of investments. You don’t pay tax on the first £12,300 of capital gains, so disciplined use of this allowance (when appropriate) can lead to significant tax savings. The allowance will be cut to £6,000 from April 2023, and to £3,000 in April 2024. This tax break is lost forever if it is not used in each tax year.
4. Retirement journey: Partnering with a professional
Significant financial decisions must be made at various stages of your retirement journey. Some of these decisions – such as how you draw on your retirement benefits once you stop working – have far-reaching consequences. Many people find that partnering up with a professional expert on their retirement journey provides clarity, peace of mind, and leads to improved financial outcomes over the long term. Partnering up with a professional also reduces the time spent managing and monitoring investments.
5. Financial Health Check
Having a clear overview of your finances is the first step towards bridging a potential gaps between a current situation and your goals for upcoming life stages. Lumin’s 8-point Financial Health Check service aims to provide you with a clear overview of your finances. We will analyse all of the pieces of your personal situation, including pensions, ISAs, cash, wills, life insurance, mortgage(s), investment strategy, income and expenditure, tax situation, and your progression towards retirement. It can help you save money, improve investment returns, and ensure your finances are in the best shape possible.
Contact the Lumin team on 03300 564 446 to book a free Financial Health Check, or fill in our contact form. This service is suitable for those with a minimum of £200,000 of investable assets.
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.
