The importance of reviews
The importance of reviews.
Several important changes to tax and benefits were introduced at the beginning of 2017/18. So it makes sense to review your financial planning regularly to make sure it’s still fully effective. After all, last year’s sensible strategy could be this year’s tax trap.
It’s a good idea to check your investment portfolio at pre-determined intervals. This is preferable to looking at it almost daily when markets are soaring or falling through the floor, as though are just the times when your emotions can override your good intentions to be a long term investor.
You will get more out of these reviews if you make a short list of what you want to discuss, to supplement our agenda. You can start with basic things like checking your use of the current ISA allowance. This tax year, there have been two important developments to ISAs: first and most important, there has been a big increase in the annual amount you can invest in ISAs, now £20,000 – up from £15,240.
The other big change to ISAs is the introduction of the new Lifetime ISA or LISA (see: Budget tax changes – set for a comeback?). You can start with one if you are between the ages of 18 and 40 and you can either use it for buying a first home worth up to £450,000 or leave it to be drawn till you are 60. The good news is that the contribution (up to £4,000 each tax year) qualifies for the equivalent of basic rate tax relief.
Reviews can prompt you to consider some of those things that sometimes get left undone – such as your will, which might still need to be arranged or updated. Or perhaps there is a lasting power of attorney that has not been progressed or a life assurance policy that should be placed under trust. Life has a habit of springing unpleasant surprises on us when least expected.
The Financial Conduct Authority does not regulate tax advice. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate will writing and some forms of estate planning.
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. Investing in shares should be regarded as long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Budget tax changes – set for a comeback
The Spring Budget contained a few surprises, but came before the big surprise – a snap election.
Mr Hammond’s first and last March Budget was a relatively low-key affair which almost disappeared once the general election was announced and most of its proposals were shelved. However, some measures are still worth bearing in mind.
Dividend allowance and business structures
The £5,000 dividend allowance, introduced in 2016/17, was accompanied by an increase of 7.5% tax rates on dividends above the allowance. This was to claw back revenue from small businesses owners who sidestep national insurance contributions (NICs) by operating through companies.
In March Mr Hammond said the dividend allowance would be cut to £2,000 from 2018/19, but in the frenetic end of parliament period the necessary legislation was dropped. A proposal to raise more money from sole traders and partnerships by adding 1% to class 4 NICs in both 2018/19 and 2019/20 was withdrawn after backbench opposition.
The dividend allowance cut, which is expected to be reinstated, was aimed at shareholder directors but it has wider ramifications. Far more ordinary investors would find themselves paying tax on their dividends with the allowance at only £2,000. If you had thought stocks and shares ISAs were becoming a waste of time, the potentially lowered dividend allowance (and new £20,000 ISA contribution limit) should prompt a re-think.
Higher rate income tax threshold
Mr Hammond confirmed the goal of a £50,000 higher rate income tax threshold by 2020/21, and left untouched existing legislation raising the threshold for 2017/18 to £45,000 (other than for certain income in Scotland).
This £2,000 increase may not be as significant as it seems, because the upper limit for class 1 employee and class 4 NICs has also risen by £2,000. So a saving of £400 in tax could be offset by a near £200 NICs increase.
As with the likely dividend allowance change, the higher rate threshold is a reason to revisit the opportunities presented by independent taxation if you are married or in a civil partnership.
The Financial Conduct Authority does not regulate tax advice. The value of tax reliefs depends on your individual circumstances. Tax laws can change. 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. Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.