Financial Planning in the New Tax Year

The end of the tax year is usually the busiest season in financial planning. Using ISA allowances, topping up pensions, and utilising capital gains exemptions all move to the top of the to-do list. But the start of the new tax year is the ideal time to refresh your financial plans, and there are several good reasons for doing that.

So what should you be prioritising in the new tax year?

Revisit Your Goals
The first step in any financial plan is to establish what you would like to achieve. This may have changed since last year, for example:

• Maybe you have already achieved some of your goals.
• Your family situation might have changed, for example, welcoming new members, or children becoming financially independent.
• You may need to provide additional financial support for dependants or elderly relatives.
• Perhaps your employment or business situation has changed, for example, redundancy, a new job, or selling a business.
• There may be health considerations to take into account.

Your situation is constantly evolving and your financial plan needs to keep up  with your circumstances. The new tax year is a great time to revisit your goals, assess your priorities and decide on next steps.

Top Up Your ISA
You can contribute up to £20,000 to your ISA in the current tax year. This can be invested in cash, stocks and shares, or a combination of both.

You can make a cash contribution, or if you have existing investments, you can arrange a ‘bed and ISA’ instruction. This means that existing capital can be moved into your ISA without having to introduce new funds.
Moving funds or shares into an ISA is considered to be a disposal for Capital Gains purposes, so it’s always worth checking the tax position first.

There may also be stamp duty payable on moving assets from one wrapper to another. This should be weighed against the risks of selling the investments first, and missing out on potential growth while the transaction completes.

There is no need to wait until the end of the tax year to top up your ISA. In fact, there are several good reasons why earlier is better:

• Your money will be sheltered from tax for an additional year.
• You can benefit from up to an extra year of potential investment growth.
• You can avoid the last minute rush to fund your ISA next April.

If you don’t have the capital available to make the full contribution, why not look into starting (or increasing) regular contributions?

Regular investing benefits from ‘pound cost averaging.’ This means that you buy into the market at different price points every month. When the market is high, you benefit from growth. When the market is low, you benefit from cheaper prices and can buy more shares for your money. This can help to smooth out some of the risks of investing.

Regular investing also helps to build good habits and financial discipline.

Use Your Capital Gains Exemptions
Whenever you sell an investment (and even sometimes when you give it away), the profit you make on the disposal is assessed for Capital Gains Tax.

You can realise gains of up to £12,300 (£6,150 for a Trust) before a tax liability occurs.
There are several ways to optimise CGT planning in the new tax year:

• Sell some of your investments to realise gains up to the level of your annual exemption. You can use the proceeds to top up your ISA, buy different funds, or take a regular withdrawal. By using your exemption every year, you avoid large gains rolling up in the future, potentially creating a major tax liability when you need to withdraw money.
• Transfer some assets to your spouse before selling. This is not considered to be a disposal for CGT purposes, and you now have two exemptions (£24,600) to set against gains.
• Sell any funds that have incurred losses, providing this is in line with your investment plan. Any gains realised at a later date will be set against losses, potentially reducing your tax bill.

Make the Most of Your Pension
Pensions are one of the most tax-efficient investments you can make, although this applies only up to a point. Over-funding your pension can result in tax penalties.

The new tax year is a good time to revisit your pension contributions and make sure you are on track for a comfortable retirement. For example:

• Consider increasing your contributions, particularly if you have received a pay rise or your expenditure has reduced. Small annual increases can make a big difference to your eventual pension pot.
• If your income has pushed you into a new tax band, increasing your pension contributions can help to reduce your tax liability.
• If your earnings have increased above £240,000 per year, you may be affected by the tapered annual allowance. It’s worth checking this and adjusting your contributions if necessary.
• The Lifetime Allowance is frozen at £1,073,100 for the next five tax years. You may want to check how close your pension value is to this limit. With careful planning, it might be possible to reduce the impact of any Lifetime Allowance charge.

If you are planning to retire, or already taking an income from your pension, it’s a good idea to reassess your income requirements in the new tax year, particularly as your other income, expenditure, or tax position may have changed.

Plan for Gifting
Normally, when you make gifts, they remain within your estate for seven years, and will factor into your Inheritance Tax calculation if you die within that time.

There are a few exceptions to this, for example, regular gifts from surplus income and charitable donations.
In addition to this, you can give away up to £3,000 per tax year. This can be carried forward to the next tax year but is then lost if it is still unused. This means that a couple who have made no previous gifts can give away up to £12,000 in the new tax year, and this is immediately outside their estate for Inheritance Tax purposes. While this may be a small benefit in the context of a substantial estate, over time, and in combination with other reliefs, large savings can be made.

A professional financial adviser can help you make a positive start to the new tax year by making the most of your reliefs, allowances, and exemptions.