Despite the turmoil, don’t forgo this year’s tax allowances24 March 2020
Savers and investors are facing an uncertain future with tumbling markets and record low interest rates, not to mention the worry over the health of their families and friends. However, despite the turmoil, some things have not changed and there is still time before the end of the tax year to take advantage of all the allowances available to you. Gary Smith, chartered financial planner at Tilney, outlines the opportunities available to you.
Individual Savings Accounts
“ISAs remain a core tax-free savings vehicle that are very popular with both savers and investors because of their flexibility. Following the global financial crisis in 2008, a succession of Chancellors chose to increase the annual ISA allowance from £7,000 (2007/8 tax-year) to the current £20,000 allowance. I would encourage those who have capacity, to continue to utilise this valuable allowance. For those who choose to utilise investment ISAs, now might be an opportune time to invest so that they will be buying in at current low levels, and be in a position to take advantage of the eventual global equity recovery. If you are too worried to invest in current conditions, you can always secure your ISA initially with cash and then invest it later.”
“As previously highlighted, the Chancellor has maintained the £20,000 ISA allowance and, rather than waiting until the end of the next tax-year to fund their allowances, given these unprecedented times, investors might opt to fund their allowances at the beginning of the tax-year to try and benefit from lower share prices and the recovery in equity markets we expect with come when the current pandemic subsides.”
“Don’t forget about the kids, who also have Junior ISA allowances that can be utilised. Up to £4,368 can be invested for each child during the current tax-year and, in a surprise announcement, the Chancellor has increased the allowance to £9,000, from 6th April 2020. This is a great way to build up a pot of savings to help them through a future degree or to get a foot on the housing ladder.”
“Prior to the Budget statement, there had been rumours in the financial press that the Government were considering scrapping higher rate tax relief on pension contributions, in an attempt to raise upwards of £10bn in tax revenues. Thankfully, the Chancellor did not make any such changes, and pensions remain an extremely attractive long term savings vehicle. All personal contributions will continue to receive basic rate tax relief, meaning that someone who contributes £80 will actually have £100 credited into their pension. Furthermore, for those earning above £50,000, they will also be able to claim higher rate tax relief on payments that they make, prior to the end of the tax-year. Therefore, if a higher rate taxpayer also contributed £80, £100 will be credited into their pension and, when they submit their annual tax return, they will be able to claim a further £20 relief, making the effective cost only £60. This is particularly important benefit, for those currently considering investing in riskier assets, such as equities, as it provides basic rate savers with de facto 20% protection against falls in value, and 40% for higher rate savers.”
“The Chancellor has left pension rules unchanged for basic rate and higher rate tax payers, and making contributions at the beginning of the tax-year, rather than the end, might be beneficial in current markets. In a move to try and remove some of the issues for high earning NHS Pension Scheme members, the Chancellor has also made changes to the levels at which point individuals will start to lose some of their annual allowance, through tapering. In a rather generous move, the Chancellor has increased the limit, at which tapering commences, from £150,000 to £240,000, applicable to everyone (not just doctors). Therefore, those currently earning above £150,000, who suffer restrictions on how much can be contributed into pensions, could once again be able to fund the maximum £40,000 allowance, and they could opt to fund this at the beginning of the tax-year.”
“This allowance remains available for married couples where one receives earnings below the Personal Allowance (£12,500) and the other is a basic rate taxpayer. You are able to transfer up to 10% (£1,250) to their spouse, representing a tax saving of up to £250. For those who are eligible, claims can be backdated to the 2015/16 tax-year, offering the potential for large tax reclaims.
“As always, if you have any queries or concerns regarding the allowances available to you, it is best to consult your financial planner.”
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.