New Tax Year – Get Planning

With such uncertain times and increased pressure on personal finances, there’s no better time than the start of the new tax year to do a bit of financial planning.

With the cost of living rising (the year to March 2022 inflation sitting at 7%) and energy prices and taxes following suit, it’s important that we make the most of the allowances and reliefs available to us. But there’s little point in trying to manage all of this in the rear view mirror at the end of the year. The most efficient planning is conducted in preparation. That way, you can pivot if needs be or as incomes and cash flow permit.

Savings and Investments

The continued pressure on the cost of living and with inflation still rising, beyond forecast, we’re likely to see multiple increases in the Bank of England base interest rate throughout 2022/23. For the first time in well over a decade, there will be an incentive (of sorts) to put money away. So, if you have ISAs, then make sure you use the full allowance available to you and start to look at longer term bonds as rates begin to edge up. Current accounts will continue to pay a pittance for some time yet, so if you can do without immediate access to the cash, these are both good options

Few people could have forecast the last 36 months in terms of the scale of global upheaval and we’re not out of the woods yet. So, one key activity for this year is to diversify your investments, spread the money around and make sure that as a family, you’ve not got all your eggs in one basket. Ensure you are maximising any/all allowances relevant to you before investing outside of those reliefs and incurring taxes.

Pensions remain a safe bet for squirrelling away any spare income and any contributions that can be made before PAYE are both tax efficient for you and the company – assuming you are an owner/director paying Corporation tax.

Investing in companies that score highly on environmental and societal responsibility scales, known as ESG investments, continue to pay good rates of interest. Whilst they may carry a higher rate of risk, it is possible to have a portfolio of such investments through an IFISA (Innovative Finance ISA) earning rates of between 4-6% with funds supporting established wind and solar projects and those providing a societal benefit through their operations.

Mitigating Tax Rises

We’ve already had announcements regarding the increases in National Insurance and Dividend tax and whilst there’s a cut in income tax pencilled in for 2024, we still need to be mindful of other measures that may be introduced. With hundreds of billions to pay back for the Covid crisis, the money will have to be found somewhere, and as we approach an election in 2024, the Chancellor will need to be seen to be making plans for debt reduction. Likely targets may be inheritance tax (IHT) and capital gains tax (CGT). With CGT sitting at historic lows, when paired with the range of available reliefs, it might be time to realise any gains ahead of possible changes in this area.

Further ahead, a Labour win in 2024 would herald a raft of new tax measures, based on current policy. The current shadow chancellor has made clear that nothing is off the table and so expect the focus of their manifesto to be wealth taxes – e.g., stocks, shares and buy-to-let property. So, when considering longer term planning, be aware of the potential impact that higher taxes could have.