Consider all the variables

From many people’s perspectives, the Autumn Budget may have left a feeling that nothing much had changed in the world of personal financial planning, as there were no major changes announced to Income Tax, Capital Gains Tax, Inheritance Tax or pensions. However, the key consideration is how outside factors such as higher inflation could affect your finances and what steps you should take before the end of the tax year to make the most of any allowances and exemptions.

Inheritance Tax (IHT)

Official figures from HM Revenue and Customs (HMRC) for April to September 2021 show that IHT receipts totalled £3.1bn, £0.7bn higher than the same period in 2020. With the nil rate band and residence nil rate band now frozen until April 2026 at £325,000 and £175,000 respectively, the importance of effective estate planning shouldn’t be overlooked.

Individual Savings Accounts (ISAs)

The annual ISA limit has now been frozen at £20,000 for five years. If the allowance had increased with inflation each year since 2017, it would stand at £21,440 today, sheltering an additional £1,440 from the taxman. JISAs celebrated their tenth birthday in November – the allowance remains at £9,000.

Dividend Tax

The government revealed in September that it would increase Dividend Tax by 1.25 percentage points from 6 April 2022 to help fund health and social care. This means investors will have to pay more on any income from shares held outside ISAs and above the £2,000 Dividend Allowance.

Pensions

The Lifetime Allowance remains at £1,073,100 and the Annual Allowance remains at £40,000. As these allowances haven’t increased with inflation, it effectively means those saving to the maximum extent possible with tax concessions can save less in real terms each year.

Variables at play

It’s important to be aware of all the variables at play; inflation, interest rates, taxation and frozen allowances all affect your finances. Talk to us for help with your individual circumstances.

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

The Financial Conduct Authority does not regulate advice on deposit accounts and some forms of tax advice.

a key consideration is how outside factors such as higher inflation could affect your finances and what steps you should take before the end of the tax year...