Happy New Year!

Whilst not the start of the calendar year, 6^th April marks the start of the 2022/23 financial year, bringing with it an opportunity to give your budget a spring clean:

• Review past bank statements and create an income versus expenditure analysis. Many clients think they know what they are spending but, in reality, the numbers can look very different. It’s easy to forget about the ‘travel into work’ coffee or the magazine subscription you ‘forgot’ to cancel.
• Review your bills. We may be in a time of energy price hikes but are you getting the best deals on other utilities such as broadband? Switching and comparison sites can help you identify which company may be best for you based on your usage.
• Review your cash savings. Have you got multiple cash accounts not earning much interest? With inflation expected to reach 7% this spring, you want to ensure your cash savings are taking advantage of the top rates available. CBW has recently partnered with a cash platform to help reduce the administrative burden of having multiple accounts, whilst still offering protection through the Financial Services Compensation Scheme (FSCS).

Once you know what you can afford to save, there are various tax allowances available. Using your allowances early in the year means you benefit from tax efficiency over the whole period.

Individual Savings Accounts (ISAs)

The allowance remains unchanged and is currently £20,000 into cash and/or stocks and shares.  ISAs are free of income tax and capital gains tax.

Junior ISA (JISA)

If you’re looking to set funds aside for your children, the JISA allowance is now £9,000, and can also be invested in cash and/or stocks and shares.

Pensions

Are you taking advantage of tax relief by saving into your pension? Pension contributions up to your annual allowance will also receive a 20% top-up. For example, if you are a basic rate taxpayer and invest £80 in your pension, HMRC will add an additional £20. You could reclaim an additional 20% if you pay higher-rate tax, and 25% for additional-rate taxpayers.

You may already be paying into your employer’s group pension, but additional contributions can be added, subject to the pensions annual allowance.  It’s also worth checking with your employer to see how much scope you have to pay contributions via ‘salary sacrifice’ which offers an additional tax incentive by saving on National Insurance.

Inheritance Tax

There are various allowances available each year to reduce the impact of inheritance tax on your family in the event of your death, including:

• Annual Exemption – you can make an annual gift of up to £3,000. If it is not used in a tax year, the balance can be carried forward to the next year but is lost if not used that year.
• Small Gifts – gifts of up to £250 to any person (in any one tax year) are exempt. This cannot be used in conjunction with the annual exemption i.e., you cannot gift £3,250.

If inheritance tax is a serious concern, you may benefit from specialist estate planning advice. There are many solutions available and this does not always mean giving money away or losing access to your capital. 

Tax Efficient investing

Are you already maxing out on pensions and ISAs and wish to seek alternative tax incentivised arrangements?

EIS (Enterprise Investment Scheme) and VCT (Venture Capital Trusts) reliefs were introduced to provide incentives to invest in unquoted companies, including income tax relief at 30% and capital gains tax exemption.  EIS contributions can be carried back to previous tax years and

VCTs provide tax free dividends.

In addition, EIS can offer Capital Gains Tax rollover and loss relief. They are also exempt from Inheritance Tax after two years.

These investments are not for everyone and generally perceived to be higher-risk investments. Please contact your adviser to discuss the pros and cons in view of your personal circumstances.

What next?

The CBW Financial Planning team are highly skilled at putting together bespoke financial plans to take advantage of these allowances in consideration of your longer-term goals and objectives. Please get in touch with Charlotte Elgar if you would like to discuss your personal circumstances further.

• The value of an investment will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
• The levels and bases of taxation and reliefs from taxation can change at any time. Tax reliefs are dependent on individual circumstances.