Firstly, and most importantly for us here at Pembroke, we want to send you our thoughts and very best wishes at this (probably the most) difficult time in your lives for many of you and your families and we hope that you remain safe and well.
Pembroke are operating as efficiently and effectively as the circumstances permit, with all our Independent Financial Advisers and Client Support staff (barring a small skeleton staff in the office each working day) working from home and dealing with you in exactly the same way as always. The telephones are manned by rota all day and we are able to deal with post and mail enquiries in exactly the same way as if we were sitting at our desks.
Clearly some things will take a little longer at the moment – and your patience is always appreciated – but we are fully operational in terms of post in and out, so please don’t hesitate to contact us as you ordinarily would, even though these are extraordinary times.
The new tax year is now a week or so old and, whilst we appreciate that this may not be the first thing on your minds at the present time, it might just be that this period of reflection and self-isolation might bring you to think about your finances and how best to organise matters over the coming year and so here are the new tax year allowances which are most relevant in the financial planning world.
Some of the Tax Year 2020/2021 allowances:-
- The Individual Savings Account (ISA) tax year allowance is still £20,000 – the limit applies to Stocks and Shares ISAs, Cash ISAs and Innovative Finance ISAs, and you can spread the allowance between the three types.
- This tax year tax year the Junior ISA allowance has risen enormously up to a whopping £9,000 from £4,368. If you have the cash to spare, these children’s accounts have just become so much more attractive. For the really forward thinking amongst you parents and grandparents, you can actually set up a pension for a child. If you can invest up to £2,880 a year, the Government will contribute another 20% tax relief, making the total invested into the pension £3,600.
- You can save £4,000 a year into a Lifetime ISA which can be used towards the cost of buying a first home, or for retirement.
- In terms of Investment tax, the Capital Gains tax allowance for 2020/21 rises to £12,300. Lower rate taxpayers pay 10% tax on capital gains, and higher and additional rate taxpayers pay 20%. The only exception is for second properties, including buy-to-let investments. Capital gains on these investments will be taxed at 18% for basic rate taxpayers, and 28% for higher and additional rate taxpayers.
- The Dividend tax allowance will remain at £2,000 for the 2020/2021 tax year. This tax does not apply to investments held in an ISA or in a pension.
- The Personal Savings Allowance means that basic rate taxpayers can earn £1,000 from savings before they start paying income tax on savings income. Higher-rate taxpayers start paying tax on savings income over £500. These allowances remain unchanged for 2020/21. There is no savings allowance for additional rate taxpayers.
- Inheritance tax (IHT) is payable at a rate of 40% should the value of your estate exceed the nil rate band (NRB), which is £325,000. In addition, there is the residence nil rate band (RNRB) which is an additional threshold which reduces further the IHT payable on your estate. This was designed to make it easier for families to pass on the family home. The RNRB is £175,000 in 2020/2021 and will apply if you pass on your home to your direct descendants i.e. children or grandchildren (this includes step- children and adopted or foster children too).
- Pensions – most people are allowed to pay up to £40,000 into their pension in 2020/21- this is called your Annual Allowance. The Lifetime pensions allowance has been increased by £18,100 for the new tax year, in line with inflation (consumer price index), and now stands at £1,073,100. For ultra-high earners who earn an ‘adjusted income’ of over £240,000, the Annual Allowance tapers by £1 for every £2 of income, to a minimum of £4,000 per year. The taper threshold increased from £150,000 to £240,000 in March’s Budget as the previous threshold impacted a wide range of high earners, including doctors and senior medical professionals.
- Pensions contributions receive full income tax relief which means that it costs basic rate (20%) taxpayers £80 to save £100 into their pension, while higher rate (40%) taxpayers only need to pay £60 to save £100. There was plenty of speculation that a flat rate of pension tax relief may be introduced in the future but to date there is no concrete evidence this is on the government’s agenda and we very much suspect that the Chancellor will have plenty of other things on his mind in the short term.
David Brunning, the latest Independent Financial Adviser at Pembroke Financial Services, one of the leading IFAs in Sussex for tax planning, pensions advice and investment advice says “The earlier you make the most of your tax year allowances, the sooner you gain the benefits. Investing early in the tax year will give your money more time to grow tax-free, which could easily result in higher returns, especially at a time when stockmarkets have been affected by the coronavirus pandemic.”
David further comments “You could also consider drip feeding money into investments rather than paying it all in in one go. This process, sometimes called pound cost averaging, can smooth out the highs and lows of the markets. You find that if markets are down one month that you will get more for your money, and vice versa. Investing regularly is a great routine to get into and so easy to achieve – all you need to do is set up a Direct Debit.”
If you’d like to discuss your investments or pensions in 2020 and beyond, please get in touch with us. Call 01273 774855 or email us at email us by clicking here.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.