Advertisement feature: Making 2020 a less taxing year

James Cridland of Coleridge Wealth Management.

James Cridland of Coleridge Wealth Management. - Credit: Archant

Make the best use of tax relief and allowances to help secure your financial future and the inheritance you leave to your loved ones.

Well over a decade since the financial crisis, the world is still a very uncertain place.

Until recently, investors enjoyed the benefits of a strong bull run by stock markets around the world, coupled with low volatility¹. But it is always wrong to believe that market shocks are a thing of the past. From uncertainty over Brexit to trade wars – and now, of course, to Covid-19 – there are always many risks that pose a challenge to investors at any given time, and any number of unforeseen factors in the years to come.

But these are beyond our control; they cannot be allowed to prevent us from planning our financial futures. Indeed, we will give ourselves the best chance of achieving our financial goals if we focus on what we can control – how and where we invest our money, how much tax we pay, the size of our retirement fund, and how much of our estate passes to our family free of Inheritance Tax (IHT).

Effective financial planning should be a year-round activity. Valuable relief and allowances can help to create long-term financial security for ourselves and our family.


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ISAs

ISAs have become one of the most popular ways to save, principally because they are simple and readily accessible.

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The substantial increase in the ISA allowance to £20,000 was a very welcome step in encouraging individuals to invest for their future. However, as interest rates in the UK are lower than ever, money being held in Cash ISAs is failing to achieve the very basic objective of keeping pace with inflation. The result is real losses for savers.

Those who are investing their ISA allowance for the long term – in assets offering the scope for attractive levels of income and capital growth – are giving themselves a better chance of maximising the tax-saving opportunities on offer.

Individuals yet to use their ISA allowance, or with accumulated ISA savings, need to carefully consider their options to ensure they are maximising this valuable opportunity to generate tax-efficient capital and income for the future.

Pensions

Saving into a pension is an even more attractive prospect than it was a few years ago. This is because there is much greater freedom for taking benefits; and pension savings can now be more easily left as part of a tax-free inheritance. However, the advantages extend further than just drawing benefits and passing money on to loved ones. The Government still rewards savers by giving them tax relief on their pension contributions.

Subject to certain limitations, for every 80p you contribute to a pension, the Government automatically adds 20p in tax relief. Higher earners can claim extra tax relief through their annual tax return, so a £1 pension contribution can effectively cost just 60p.

While tax relief is seen as a means to encourage pension saving, the annual cost to the Exchequer of providing it is around £40 billion². With the Government under increasing pressure to reduce public spending, there’s no guarantee the higher rates of tax relief will be maintained into the future.

Those wishing to make their retirement plans a reality should consider fully utilising their annual allowance for this tax year to make the most of the tax breaks on offer. Unused allowances can be carried forward, but only from the three previous tax years. This financial year is the final chance for pension savers to use the 2017/18 allowance.

Inheritance Tax

There are few more confusing, or unpopular, taxes than IHT. But continued confusion and inertia means the Office for Budget Responsibility expects to see a 19 per cent increase in IHT revenues over the next four years³.

However, there are a number of exemptions which allow individuals to reduce future bills. Perhaps the best known is the annual gifting allowance, which gives individuals the opportunity to remove £3,000 of assets from their estate immediately (£6,000 if they use the previous year’s allowance as well).

Taking steps to reduce your taxable estate by topping up a child’s pension or Junior ISA could go a long way to providing them with an invaluable head start in life. The Junior ISA allowance rose from £4,368 to £9,000 on 6 April 2020. Also, make this year’s £3,000 gifting allowance count – and carry forward last year’s, if you haven’t used it already.

It’s a time of the year when individuals and couples are given an opportunity to put their long-term plans back on track by using relief and allowances that would otherwise be lost. Nevertheless, this requires some knowledge and expertise. That’s why you should speak with a financial adviser to better understand how you can gain maximum advantage for this year and the years to come.

1 CBOE Volatility Index (VIX), accessed 5 September 2019

2 HM Revenue and Customs – Estimated Costs of Tax Reliefs, October 2019

3 Office for Budget Responsibility, Economic and fiscal outlook – March 2019

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Coleridge Wealth Management on 01275 430 024 or email coleridgewm@sjpp.co.uk

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