For many people, meeting with their financial advisor once per year is an essential engagement to evaluate changes and assess how well placed they are in meeting their goals. For others this level of interaction may be unnecessary, instead preferring to take up advice at key dates, regular intervals or following significant changes in their lives. Another such reason is when changes in regulation and tax laws occur. Individuals who receive ongoing financial advice will be kept up to date with relevant changes as part of their financial review. For those who only access financial advice at sporadic times or critical junctures, keeping up-to-date with significant shifts in the tax system and the wider world of personal finance may prove a somewhat daunting task. These changes don’t tend to receive the mainstream publicity that perhaps they ought to and filtering out which changes are relevant to you can prove tricky too.
We shared our tax tables back in the Spring, highlighting many of the key changes announced in the chancellor’s budget . We recognise that clients who improve their grasp of personal finance fundamentals are likely to become more empowered and confident when navigating financial hurdles which we all encounter from time to time. So where appropriate – and where welcome – we see the value in not just delivering advice but also educating the public in personal finance matters along the way. Our tax tables help to do just that.
A standout change brought in with the new tax year (20/21) relates to an individual’s annual pension contribution limits, known as the annual allowance. Changes to the annual allowance tapering limits mean that some high earners could effectively benefit from tax relief on up to £30,000 more in pension contributions this tax year compared to last. Whether committing more funds towards meeting retirement goals is an appropriate action to take is likely to be based on careful consideration of a number of factors including the lifetime allowance, carry forward potential, earned income, an Inheritance Tax position and a detailed assessment of retirement goals and surplus funds. We would therefore recommend seeking professional guidance to assist with retirement planning decisions.
A change in the Junior ISA (JISA) limits could present some planning opportunities. The JISA allowance limit has increased from £4,368 to £9,000 this tax year and may be of interest to those looking to help children under 16 with education needs or perhaps getting on the property ladder later down the line.
In recent years a number of changes have been introduced in the investment property market which impact on landlords. Owners of buy-to-let mortgages are no longer able to deduct mortgage expenses from rental income to reduce their income tax bill. Instead, a tax-credit for 20% of interest payments will be provided which affects those landlords who are higher and additional-rate taxpayers . This change is one of many designed to dampen the growth of the investment property market and foster homeownership in the UK, and as benefits are stifled in one area many will look elsewhere in search of new investment opportunities. Our recent article compares investment in property to an investment portfolio: https://www.castlefield.com/news-media/blog/residential-property-purchase-or-investment-portfolio/
2020 was anything but normal and the economic impact of the pandemic continues to unfold. The budget deficit has surged in recent months as the government announced new fiscal stimulus packages in an attempt to keep the economy going through lockdown. Industry talk and speculation grows of future changes in our tax system in an effort to reduce national debt . We don’t know what is around the corner, but more change could be on the way – there is much speculation within our industry that rises to Capital Gains Tax may be ahead: https://www.castlefield.com/news-media/blog/chancellor-requests-review-of-capital-gains-tax/
If you think you may be affected by recent changes to tax and regulation you can request a consultation with a Castlefield financial advisor. We typically begin with a financial ‘health check’ to help set goals and assess what actions you may need to take to achieve them. Gaining advice from a professional can help you manage your finances, provide peace of mind and take advantage of any opportunities that may arise as changes are announced.
There are common areas which can typically be completed each tax year - get in touch if you think you may need to:
- Make use of your annual ISA allowance – this is lost if you don’t use it each year
- Top-up your Pension
- Make use of Capital Gains Tax exemptions
- Put aside income or capital to boost your emergency fund
Written by Michael Owens
Please note that this communication does not constitute taxation advice. Should you require taxation advice please speak to a taxation specialist or accountant. Any personal advice in respect of taxation is not regulated by the Financial Conduct Authority. Further information about taxation rates, allowances and protections are available at https://www.gov.uk.