FINANCIAL INDUSTRY NEWS
Our Allowances - some are changing and some are going
Whilst we have had no Spring Budget this year, it doesn’t mean that there aren’t things we need to consider as we head towards and then past the tax year end.
Tax allowances are the levels set by the Government to adjust how much we can spend, save or give away before we invoke a tax bill. Whilst the Government remains committed to not reducing direct tax levels, they are clearly finding other ways to amend the tax take. With the end of the tax year nearly upon us, we thought it was a good idea just to remind you of those allowances that will be changing and some that you will lose if you haven’t already taken some action.
Key allowances that are changing
Residence Nil Rate Band increases from £100,000 to £125,000
Residence Nil Rate Band increases from £100,000 to £125,000
This is the new allowance, launched in April 2017, which aims to take some or all of your home outside the inheritance tax threshold. By 2021, the allowance should be at £175,000 and added to the Nil Rate Band of £325,000, should give a married couple a notional inheritance tax allowance of £1,000,000 (£500,000 each). This current in allowance is part of that tapering process. As is so often the way with these things, there are a number of caveats, so careful planning is required to benefit fully from this.
Pension Lifetime Allowance (LTA) increases from £1,000,000 to £1,030,000
The Pension Lifetime Allowance is the maximum level that people can withdraw from their pension in total without paying a charge. For the first time since 2010, the allowance has increased, due to indexation being added to the calculation when it was last reduced two years ago. A 3% inflation rate means that there is now an increased Lifetime Allowance level. For those affected by the LTA, this is good news.
Dividend Allowance reduces from £5,000 to £2,000
This will affect directors of limited companies and those who hold significant investments outside an ISA or Pension wrapper. Directors will need advice around their current and future remuneration strategy. They should be asking whether a combination of dividends, salary and employer contributions into their pension would be more suitable. Once again, planning is clearly an important aspect. Those investors who are affected by this have even more reason to take advantage of their ISA allowance.
Allowances that will be lost
We have looked at the allowances that are changing, but what about some of those that we are losing. As we head to the end of the tax year, here are a few things to consider before 5 April 2018.
Your 2017/18 ISA Allowance
The ISA allowance was increased to £20,000 at the start of this tax year and will remain at that level through tax year 2018/2019. However, unlike Pensions, there is no ability to carry forward any previous allowance once the tax year has finished. Therefore, if you haven’t taken advantage of your ISA allowance in 2017/2018, then the time left in which to do so is now very limited.
Your 2014/15 Pension Annual Allowance
Unlike ISAs, you are allowed to carry forward Pension Annual Allowance from the three previous years. You can only do this if you have already used up the annual allowance in the tax year that you are in. However, once Tax Year 2018/19 is upon us, the 2014/15 allowance will be lost forever.
Your Inheritance Tax Annual Gift Allowance
You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’. You can also carry any unused annual exemption forward. Therefore, if you didn’t utilise your annual exemption last tax year, you only have another few weeks to take advantage of this.
These allowances can form an important part of your overall financial situation, but, as always, care must be taken when utilising them and, in all instances, it is crucial that we plan carefully before we take advantage of these key allowances.
If you would like to discuss your own situation, please do not hesitate to get in touch and if you would like to print this article or download it to your computer as a PDF please click on the image here.
What about your own ‘State of the Nation’?
As we head toward the end of the Tax Year, attention normally turns anxiously to the March Budget announcement from the Chancellor. Traditionally, the Budget is held in Spring and we would all wait with baited breath for any major announcements. However, Philip Hammond decided last Spring that the Autumn was the best time for key announcements and so, on Tuesday March 13th, all we will get is a Spring ‘Statement’. We expect this to be more of a ‘State of the Nation’ announcement and we will be bold and suggest that the word ‘Brexit’ may be used more than once.
However, this then got us thinking. This does tend to be a time of the year when people reflect a little. Spring is upon us, nature is awakening and preparing for the annual spectacle of colour. As evenings get lighter and the weather gets warmer, we find ourselves stretching out a little in every sense and considering our longer term plans. So perhaps now is also a good time to do your own ‘State of the Nation’ planning.
We often talk about the added benefit that can be provided by wise lifestyle choices, and whilst we predominantly deal with your Financial Matters, we also like to discuss both the freedom and life fulfilment that good planning can offer you. One of our regular mantra’s is ‘money doesn’t have any value without having a purpose’. We love having discussions with clients about how their money can be used effectively and kept within the right context of their lives.
March also tends to be the time when we encourage people to consider any allowances that may support their position. For example, the £20,000 ISA allowance is an excellent tax efficient savings vehicle that should be utilised if possible. However, one allowance that tends to be overlooked is Gift Aid. Donations made using Gift Aid can be used to offset any tax you may have to pay. This is a perfect opportunity to consider how you can make a difference to others less fortunate than you, whilst obtaining extra support from the Government, when you do so.
Spring is also a time when we will be stretching our own legs, both literally and metaphorically. Firstly, please look out for a new initiative from County Financial called ‘Wealth and Health’. We are teaming up with a specialist from an organisation who helps people make healthier lifestyle choices and we have asked them to write some regular articles which we hope will be of interest to you.
Secondly, Andy, Simon and Jonny from the County team will literally be stretching their legs. On the 3rd March 2018, they will be putting themselves through 3½ hours of mud and grime, by completing the ‘Winter Nuts Challenge’ which is one of the toughest obstacle courses in the UK!
They are looking to raise enough funds to build a borehole in Uganda which would prevent women and girls having to walk 2-3 kilometres each day to collect water and make a massive difference to 250 people’s lives. It would be wonderful if you felt able to support them, if this is of interest please take a look at the following link on our website.
Therefore, as our Chancellor, Mr. Hammond, considers the comments he will make in March about the State of the Nation, why not take a moment to ask yourself the same question about the State of your ‘Nation’. As Napoleon once said, ‘Riches do not consist in the possession of treasures, but in the use made of them’.
If you have any questions concerning any of these matters, please do not hesitate to contact us and we would be very happy to assist.
If you would like to print this article or download it to
your computer as a PDF please click on the image here.