DON’T FORGET TO USE YOUR TAX ALLOWANCES
Each year, UK taxpayers waste billions of pounds by paying tax unnecessarily or failing to claim tax relief that was due to them. With the advent of the 2017–18 tax year, it’s worth spending time thinking about the tax allowances that are available on savings and investments, and aiming to put them to good use during the year.
This is the amount of income you can earn or receive in a year without paying tax and, for 2017–18, is £11,500.
From 6 April 2017, the annual overall ISA allowance rose to £20,000. The tax-efficient ISA range now includes the Lifetime ISA with an annual contribution limit of £4,000 designed to help those under 40 save for a first home, or build up savings to age 60. It offers a 25% bonus from the government on contributions made until age 50. When it comes to saving for a child, the tax-free annual limit for a Junior ISA is £4,128.
It’s worth remembering that there is no Capital Gains Tax to pay when you sell shares or units held in an ISA.
For the 2017–18 tax year, the first £5,000 you receive in non-ISA dividends is also taxfree.
For a basic-rate taxpayer, the first £1,000 of savings interest received is tax-free. For higherrate taxpayers, the threshold is £500.
Capital gains tax (CGT) allowance
The allowance has increased, meaning gains under £11,300 are tax-free. Married couples and civil partners who own assets jointly can claim a double allowance of £22,600.
The higher your tax rate, the more tax relief you could receive. You can get tax relief on private pension contributions up to 100% of your relevant earnings, and the standard annual allowance on which tax relief is available is £40,000, tapering to £10,000 for the highest earners.
Gifts that are automatically free from Inheritance
Tax Each financial year you can make gifts of up £3,000 (in total, not per recipient). Gifts of £250 to any number of people are exempt. Each parent of a bride or groom can give up to £5,000; grandparents or other relatives can give up to £2,500 and any well-wisher can give £1,000. Gifts to registered charities and political parties are also exempt. Tax treatment depends on individual circumstances.
Tax treatment, rates and allowances are subject to change. The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
IS IT TIME YOU REVIEWED YOUR PROTECTION NEEDS?
Many people are introduced to the benefits of life insurance when they sign up for their first mortgage. Having taken the important step of putting cover in place that would ensure that their mortgage would be repaid in the event of their death, they often put the policy away in a safe place and don’t give it another thought for many years.
However, we all experience life-changing events such as having children, buying our next house, taking on more debt or changing jobs. Before we know it, we’re contemplating retirement.
Many people don’t think about reviewing their policy, but forgetting to do so could mean that your family won’t have enough money to pay the mortgage or meet the bills if you die. It could also mean that you’re paying more for your premiums than perhaps you need to, as there may now be more cost-effective policy options available to you.
Policies tailored to your needs
Life insurance comes in various forms and can be combined with other types of cover to cater for a range of needs. So, besides providing a lump sum on death, you can take out cover to protect against the diagnosis of a critical illness, accident, incapacity or unemployment, or to provide income protection.
It can be a good idea to write your life policy ‘in trust’. This simple formality ensures that the proceeds would go directly to your beneficiaries on your death, avoiding inheritance tax and the need to obtain probate before the funds are payable.
So, if you’ve had your policy for a few years and your circumstances have changed, then why not ask us for a review? Doing so will ensure you have the right policies in place to protect your financial future.
DEMENTIA: HOW A LASTING POWER OF ATTORNEY CAN PROTECT FAMILIES
With dementia and Alzheimer’s disease now officially the biggest cause of death in England and Wales1, more families are protecting their future by creating Lasting Powers of Attorney while they have the mental capacity to do so.
A Lasting Power of Attorney (LPA) enables you to choose the person or people who would make decisions which affect you, if you are not able to do this for yourself. LPAs make things easier for family and relatives if you lose capacity, helping ensure that decisions that affect you would be made in your best interests, and that your affairs, both your finances and your health, are managed in the way you would have wanted. These documents are straightforward to draw up, and one or more people can be appointed to act as attorney.
Without an LPA or a valid pre-October 2007 Enduring Power of Attorney (finances only), someone would have to apply to the Court of Protection to be appointed as your Deputy, a process that can be expensive and time-consuming, often taking up to six months to complete.
1Office for National Statistics 2015
FINANCIAL HABITS THAT CAN DESTROY YOUR WEALTH
We all lead increasingly busy lives and taking time out to tackle our financial bad habits can seem tedious; somehow it never quite gets to the top of our ‘to do’ list. However, spending just a comparatively small amount of time thinking about our money, and what we could do differently can help make the future more financially secure.
We all have our little weaknesses, for some it’s multiple trips to the coffee shop, for others it’s online shopping, visits to the garden centre or match tickets. Whatever life stage you’ve reached, having a budget to work within will help you keep track of what you spend. This can be important at any age, but if you’re saving hard for a deposit for a property, or planning your retirement finances, it’s essential to know where your money goes and how much you can afford to spend.
Not having an emergency fund
Everyone should have cash put by that could cover three to six months of living costs based on their current expense level. If you dip into this fund, remember to build it back up as soon as you can, especially if your cost of living increases over the years.
Not comparing costs
Expensive debt can end up eroding your wealth very quickly, so it pays to keep loans and mortgages under regular review. Credit cards can also come with high interest charges, so shopping around for good deals really pays. And although it can seem time consuming, it’s important to compare costs for bank accounts, utilities, home insurance, phone and broadband deals too.
Failing to plan
For many younger people, retirement can seem light years away. In many cases, people only think seriously about their later years when they have reached their peak earnings somewhere in their 40s. Defining your goals, short, medium and long-term, will help you get a feel for how much you should be saving in your early years to make adequate provision for your future. Even small sums saved regularly can make a big difference to your financial future.
Not keeping track of investments
It pays to review your savings and investments from time to time. That way, you won’t expose your money to unnecessary risks. Weeding out poorly-performing holdings, and rebalancing the mix of assets that you hold will help to keep your portfolio healthy.
If you’re making plans for your retirement and would like some professional advice, then please get in touch.
SAVERS OVER 55 CITE FALLING INTEREST RATES AS A MAJOR CONCERN
A recent retirement study(1)from a major insurer highlights that while people are not feeling significant additional financial pressures on a day-to-day basis, the rising cost of living and the current low level of interest rates are of concern to many.
The report also reveals that 14% of respondents are now slightly more anxious than they were last year about having sufficient funds to last the whole of their retirement, and there’s evidence that the decisions that need to be taken can seem confusing.
This is where retirement planning can help. Taking professional advice can ensure that you make the most of your money in your later years. Most people will find themselves with a range of options at retirement, so making the right decisions is crucial. With life expectancy increasing, there is now the prospect for today’s retirees to spend as many years enjoying retirement as they spent saving for it. If you’d like to review your pension planning, get in touch.
(1)Aviva, December 2016