Now could be a good time to hone in on start-of-the-tax-year basics; namely implementing easy tax wins and conducting a review of your finances. Here are some key things to consider:
ISA and pension allowances
Thousands of pounds can be saved each tax year by doing the basics well. Each adult can pay £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 when it comes to pensions. Earners should consider paying in at the start of the tax year (not applicable for those 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 and benefit from tax relief. The standard annual allowance has risen from £40,000 to £60,000, a 50% increase that provides a valuable incentive for certain savers to contribute more to their pension.
Harvesting gains
Each adult currently benefits from a capital gains tax Annual Exempt Amount of £6,000 (this will be cut to £3,000 from April 2024). This can be used to harvest investment gains annually and avoid or reduce a tax charge. The allowance must be used before 5 April 2024, or it will be permanently lost. The timing of realising gains (in line with market sentiment) is an important consideration.
Review your investment strategy
Does your strategy factor in a diversified asset allocation and match your latest goals? How does your overall performance compare against annual benchmarks? The start of a tax year is a good time to do an audit of your investment strategy. A free portfolio health check can ensure your investments are set up to meet your goals.
Mortgages 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 this strategy should account for the impact on their ISA and pension contributions. It’s a good idea to plan re-mortgaging around six months before a fixed rate ends, and review your repayment plan annually.
A plan for your finances
Creating an annual plan that covers your pensions, investments, mortgage and other areas is an excellent way to start the tax year, and it can also help keep you on track to meet your financial goals.
To discuss your options for the tax year, and how this can form part of an overall financial plan, please contact a Lumin financial adviser on 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.
