Meeting Your Financial Goals 

Meeting your financial goals can be a challenging and complex task, but it is crucial for ensuring a secure and prosperous future. One key aspect of achieving financial success is tax planning, as this can help to reduce your tax liability and ensure that you are taking advantage of all available reliefs, allowances, and exemptions.

By taking action now, you can position yourself to make the most of these opportunities and ensure that you are making the most of your investments. This can involve considering a range of factors, from your personal financial situation and your investment goals, to the current tax landscape and relevant legislative changes. Many of which require you to take action before 5th April 2023.

While some people may avoid making New Year’s resolutions for fear that they will only break them, those who do make Financial new year resolutions are more likely to end the 2022-2023 tax year in a much better financial shape than when they began.

Are you ready to put the tips into action?

We have provided some of the main areas you may wish to discuss with us, if appropriate to your personal situation.

Topping Up Your Pension

Pensions are a great way to save for retirement, and topping up your contributions can help you to build a more substantial nest egg. By increasing your contributions now, you can benefit from the power of compound interest and ensure that you have enough saved to enjoy a comfortable retirement. They are also more flexible than they have ever been and remain extremely tax-efficient.

A pension is essentially a long-term savings plan designed to help you save for your retirement. There are two main types of pensions: personal pensions and workplace pensions. Personal pensions are pensions that you set up and manage yourself, while workplace pensions are pensions that are set up and managed by your employer.

One of the biggest advantages of pensions is that they offer tax relief on your contributions. This means that the government will give you back some of the tax you have paid on your earnings, and add it to your pension pot. The amount of tax relief you receive depends on the rate of the income tax you pay.

For example, if you are a basic rate taxpayer, and you pay £80 into your pension, HMRC will top up your contribution by £20. This is because basic rate tax relief is currently set at 20%, which means that for every £80 you pay in, you’ll receive an additional £20 from the government. However, if you are a Scottish taxpayer, the tax relief you are entitled to will be at the Scottish Rate of Income Tax, which may differ from the rest of the UK.

If you’re a higher or additional rate taxpayer, you can claim back up to an additional percentage through a self-assessment tax return. For example, if you’re a higher rate taxpayer and you pay 40% income tax, you could claim an additional 20% relief on your pension contributions. This means that for every £80 you pay in, you could receive an additional £40 from the government.

It is worth noting that there are limits to how much you can contribute to a pension each year and still receive tax relief. The annual allowance for most people is currently £40,000, although it may be lower for high earners. If you exceed the annual allowance, you may have to pay a tax charge on the excess amount. Lower allowances may apply if you have already started drawing a pension, or if you are a higher earner with income plus pension contributions that total above £150,000.

If you’ve used your full allowance in the current tax year but not in recent years, you may also (depending on your circumstances) be able to ‘carry forward’ any annual allowance that you haven’t taken advantage of in the three previous tax years. There’s also the Lifetime Allowance to consider. If the value of all your pensions is more than £1,030,000, anything over this limit will be taxed when you start using it.

The value of pensions can go down as well as up, and you may not get back as much as you put in.

Taking your ISA to the max

One of the easiest ways to reduce your tax bill is to shelter any returns above your allowances in an Individual Savings Account (ISA), which is a tax-efficient wrapper. For the 2022-2023 tax year, you can put up to £20,000 into an ISA.

For a couple with two children (depending on their independent circumstances) and taking into account there is no specifica ISA allowance for families or children the total available IS allowance is £58,000, which comprises £20,000 for each adult plus £9,000 of a Junior ISA ( JISA ) allowance per child.

Of course things are subject to change so it’s always a good idea to check the rules and limits via HMRC or the DirectGov Website for up to date information. This information is accurate based on the 2022-2023 tax year.

You can choose to hold all of that in a Cash ISA, or put it into a combination of investments, including funds, shares, gilts and bonds through a Stocks & Shares ISA, or you can invest in peer-to-peer lending through an Innovative Finance ISA. Alternatively, you can split your allowance between a Cash, Stocks & Shares, Innovative Finance and Lifetime ISA. (LISA)

However, with a LISA, you can only allocate up to £4,000 of your £20,000 allowance. You also must be aged between 18 and 39 when you start and can deposit up to £4,000 per year until your 50th birthday. The Government will add an annual bonus of 25% (up to a maximum of £1,000 per year) to any savings.

The principal purpose of a LISA is for the proceeds to be used to either (a) purchase a first home or (b) provide you with funds to help you in your retirement after you have attained age 60. This means that, if the money is withdrawn for any other purpose (and unless the saver is in serious ill health), the 25% government bonus will be withdrawn, and the proceeds will also incur a 5% charge.

You won’t be taxed on returns from savings or investments held in an ISA, nor will you have to pay Capital Gains Tax (CGT) on any of the profits you make above the annual CGT allowance, which in the 2022-2023 tax year is £12,300. The standard CGT rate is 10%, while the higher rate is 20%.

Getting Personal With Your Allowance 

Everyone has a certain amount of income they can earn each year without paying Income Tax, known as their ‘personal allowance’. For the 2022-2023 tax year, this amount is £12,570. This means that you won’t have to pay any Income Tax on the first £12,570 of your earnings.

In addition to your personal allowance, you also have access to the Personal Savings Allowance (PSA). Since April 2016, savings interest has been paid tax-free, which means that most savers no longer have to pay Income Tax on the savings income they receive. Your PSA depends on which Income Tax band you are in, with basic rate taxpayers entitled to a £1,000 allowance, while higher rate taxpayers receive a £500 allowance. Unfortunately, additional rate taxpayers are not eligible for a PSA.

If you’re an investor, you also have a dividend allowance to take advantage of. This means that individuals receive their first £2,000 in dividends tax-free. However, any dividends above this amount will be charged at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

For married couples, take advantage of your marriage vows, considering the tax implications of joint accounts. If one spouse is a higher or additional rate taxpayer and the other doesn’t pay tax at all, it could be more tax-efficient to put the account solely in the non-taxpayer’s name. This would give that spouse full ownership of the account, so it’s important to make sure you’re both happy with the arrangement

Keeping Your Inheritance In The Family

If you are looking for ways to protect your hard earned money from taxes then ISAs and pensions are great options, but there are other tools at your disposal. When you pass away, your estate is valued and subject to Inheritance Tax (IHT) at a rate of 40%. However, the first £325,000 nil-rate band (NRB) is exempt, and anything left to your spouse is also exempt.

If you’re married or in a registered civil partnership, you can benefit from an additional family home allowance, which makes it easier to pass on the family home to direct descendants without incurring IHT charges. Introduced on 6 April 2017, the family home allowance started at £100,000 and for tax year 2022-2023 the residence nil-rate band (RNRB), is £175,000 per person.

Meaning that,  if you leave your main residence to your children or grandchildren, your estate can benefit from an additional tax-free amount up to £175,000. The RNRB is in addition to the standard nil-rate band of £325,000, which means that couples can potentially pass on up to £1 million tax-free to their direct descendants.

Current tax rules also enable you to give away up to £3,000 free of IHT each tax year. You can give away more than this amount if you want to, but you must live for at least seven years from the date of the gift for it to be exempt from IHT.

The value of investments and income from them can go down. You may not get back the original amount invested.

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