Whether you’re looking to reduce your tax burden or plan for long-term financial goals, Harmonic Financial Planning can help you with a tailored plan
As the April 5th end-of-tax-year deadline approaches, January offers the perfect opportunity to regroup and take stock of your personal finances. Many use this time to reflect and plan ahead, setting goals and ensuring they’ve made the most of the allowances available to them.
There may still be opportunities to reduce your HMRC bill that you haven’t yet taken advantage of. From pensions to partner allowances, and kids’ ISAs to carry forwards, working with a financial advisor can help you cover all bases and avoid leaving money lying on the table. Here are some key tax breaks to consider:
Keep it in the family: Allowances like spousal transfers and Junior ISAs can help reduce your tax bill this year.
Technically, you may be able to put up to £200,000 into your pension this year using the “carry forward” allowance rule. Depending on how much you paid in previous years, you can use unused allowances from the past three tax years to maximise your contribution towards your future.
To take full advantage, however, certain conditions must be met. Contributions must be backed by relevant earnings, and prior annual allowance tapering might affect how much you can carry forward.
For those with fluctuating incomes, such as business owners, or anyone considering a large one-off contribution, this rule can be an especially useful option. The Harmonic FP team can guide you through the complexities, from verifying eligibility to understanding how tapering might apply to you.
A rise in annual pension contributions allowance in 2023 means, even if you dan’t have any “carry forward” allowance, you can still save up to £60,000 a year tax-free into your pension - or 100% of your annual earnings, whichever is lower. (Although If you have total earnings above £200,000 a year, your annual allowance will gradually reduce to £10,000 in the current tax year. This is known as the tapered annual allowance).
Pension contributions also benefit from tax relief at the tax-payer’s marginal rate. So, if you are a higher-rate tax payer, every £1,000 contributed will cost only £600 after tax relief, while additional-rate tax payers pay as little as £550.
You likely know that ISAs offer one of the most tax-efficient ways to save and invest. Each year, each individual can invest £20,000 free of tax in an ISA.
But did you know, you can contribute an additional £9,000 a year into a Junior ISA for each of your children?
Funding your child’s Junior ISA doesn’t affect your own adult ISA allowance, and will give them a safe nest egg that can grow alongside them untouched by taxes, providing a potentially considerable pot for their education, a first home, or even their entreprenuerial ventures when they turn 18. Starting early ensures they have the longest time to benefit from the advantage of compounding growth.
Capital Gains Tax (CGT) is painful drain on investment returns, so while modest, it’s important to use your annual £3,000 CGT allowance or lose it.
CGT, due on profits you make when you sell an asset such as a second property or investment, saw a hike last year in the Autmn budget to a basic rate of 18%, and a higher or additional band rate of 24%.
A tax tip that many couples overlook: you are able to transfer assets in order to share gains to make the most of both of you and your partner’s annual allowances.
By moving assets to your spouse without triggering tax on the transfer, you can potentially reduce your overall Capital Gains Tax (CGT) and dividend tax liabilities. This strategy is particularly effective if your partner is in a lower tax band, enabling you to make full use of their allowances.
Working together with an advisor to build separate saving pots helps you not only strengthen your combined retirement savings, but also create a financial safety net for both partners—offering additional security in the face of unexpected life changes.
It’s important you take stock of your investments before the April 5th deadline. If some of your investments have lost value, you could sell them to turn those losses into a tax advantage.
By selling at a loss, you can bank losses to offset any gains you’ve made elsewhere, reducing the amount of CGT you pay. You can also carry these losses forward to offset gains in future years.
A financial advisor could help you maintain your portfolio's overall positioning, while reducing your tax liability, by selling an investment at a loss then purchasing a similar investment - provided the replacement is sufficiently different.
Many of us have multiple pension pots with different providers from previous jobs, and it can be frustratingly challenging to keep track of all our retirement savings. Consolidating pensions into one scheme can significantly reduce fees and simplify your finances.
By streamlining your pensions, you can access a wider range of investments, enhance tax efficiency, make legacy planning easier and avoid dormant pots losing value.
But beware, some older pensions may have fees for withdrawals or valuable guarantees, so you’ll want to speak to an expert to ensure consolidation aligns with your long-term goals.
Lastly, explore tax-advantaged schemes like the Enterprise Investment Scheme (EIS) or Venture Capital Trusts (VCT), which provide CGT relief. Not only do these provide relief from CGT, but they also support innovative businesses, giving you the opportunity to grow your wealth while making an impact.
Financial planning goes far beyond questions around specific tax bills; it’s about creating a secure financial foundation so you can afford to pursue the things that matter to you most in life – whether it’s running a business, school fees, university costs, helping your children buy their first home, or achieving financial freedom in your retirement.
Advisors at Harmonic Financial Planning help hundreds of clients to save through personalised, holistic financial plans.
Whatever your level of experience, our experts at Harmonic FP can help you put a harmonised and personalised plan in place. Send us a message with your details, and one of our specialists will be in touch with you for a no-fee first meeting.
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