The rumour mill has been churning out speculation about future tax rises for months now, and every warning of the potential pain to come is cranking it up a gear.
It means now is your window of opportunity to get in ahead of the 2024 Autumn Budget, with sensible moves that take advantage of the tax rules as they are right now.
However, the key is to avoid panicking. Instead, it makes sense to identify the things that work for your overall finances, and you’ll be grateful for, even if you don’t get the changes you were expecting.
Here are six options to consider.
This isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on your circumstances. If you’re not sure what’s right for you, ask for financial advice. Remember, all investments can rise and fall in value, so you could get back less than you invest.
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Make a pension contribution
We’ve seen a 71% surge in people maxing out their Self-Invested Personal Pensions (SIPPs) so far this tax year – likely in response to rumours that the chancellor might have the annual allowance or tax relief in her sights.
Higher and additional-rate taxpayers benefit enormously from tax relief – a £60,000 contribution costs just £36,000 for a higher-rate taxpayer and £33,000 for someone paying additional rate.
If you’re planning to add money to your pension this tax year, and you have the money available now, you might want to consider doing it before the Autumn Budget.
Just remember though, you can only access money in a pension at 55 (rising to 57 in 2028). Scottish rates of tax differ and you need to pay enough tax at the higher rate to claim back the full amount of tax relief.
Pay into an ISA
Almost a third more HL clients are maxing out their Stocks and Shares ISAs this tax year, as rumours of potential changes to capital gains tax (CGT) swirl.
It’s a straightforward step that can make a big difference.
By investing through a Stocks and Shares ISA, you pay no CGT, both when you sell and cash out, and whenever you rebalance your portfolio as you go along.
You also don’t pay any income tax.
Although this would be a drastic step, some investors are concerned the government could cut the ISA allowance too.
If you have the money available, and were planning to invest this tax year anyway, it’s worth doing it before any potential new changes.
Take out a Junior ISA for a child
The number of HL clients maxing out their children’s HL Junior ISAs (JISAs) has shot up by two fifths in the current tax year.
JISAs offer a triple-tax benefit.
They grow free of capital gains tax and dividend tax.
They also fall outside the rule that money invested by parents for their child will be treated as theirs for tax purposes when it produces income of more than £100 a year.
Plus, they’re handy for anyone concerned about inheritance tax (IHT). Money paid into a Stocks and Shares Junior ISA for a child under 18 will count as being given away immediately for IHT purposes. However, it will be tied up until they’re old enough, aged 18,to make more sensible choices with it.
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Use Share Exchange (Bed and ISA) for existing investments
ISAs aren’t just useful for brand new investments.
If you have shares in an HL Fund and Share account, you can use the Share Exchange (Bed & ISA and Bed & SIPP) process to sell assets outside an ISA or pension – keeping in mind your £3,000 CGT allowance when you sell – and move them into the ISA or SIPP wrapper.
That way you don’t have to worry about either income tax or CGT on these investments once they’re in the ISA.
Use your CGT allowance
You can often choose when to take a capital gain.
You can do so this tax year and make up to £3,000 of gains tax free.
To reset the CGT, you can either stay out of the market for 30 days and buy the same assets again, or consider new investments and buy back in immediately.
It means you might want to realise any gains now while you know where you stand. However, this isn’t guaranteed to save tax – it just means you can choose to realise the gains when you have certainty over what they will cost.
Take advice
It’s important not to rush into any decisions, or allow the tax to force you into decisions you wouldn’t otherwise take.
And if you’re struggling to work out the best approach for your circumstances, it might make sense to ask for financial advice.
In any case it’s worth considering the most sensible way to take advantage of this potential window of opportunity before it closes.
If you think you could benefit from getting expert financial advice from a professional, get in touch with our advisory team today. You won't get personal advice on the call, but they'll talk you through the advice service we offer, including charges and connect you with an adviser if you'd like to go ahead.
Our advisers can recommend how you can make the most of your tax allowances through financial planning. But if you need complex tax calculations, your adviser might recommend you speak to an accountant to complement their advice.
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