The new tax year has commenced and whilst many people are aware of the tax breaks available to them, its worth pointing our a few areas of change for this tax year. There are major changes to the ways dividends are to be taxed. Changes to the rates of Capital gains tax will also come into effect from the 6th April 2016. Here's a brief outline:
ISA Allowance 2017/18
The ISA allowance for this tax year has increased to £20,000, it is still important to use your allowance if possible. Unfortunately, the interest on cash Isa is at an all-time low. However, for many long term investors a low risk stock and shares Isa might be an alternative option.
New Personal Savings Allowance
The Chancellor has introduced a new personal savings allowance from 6th April 2016. The first £1,000 of savings interest will be tax-free if you are a basic rate taxpayer, whilst the first £500 will be tax-free if you are a higher rate taxpayer.
Changes to Dividend Tax
From the 6th April there will still be the £5,000 tax-free dividend allowance for investors. If you hold investments that are not in tax efficient, such as Individual Savings Accounts or pension savings and are subject to the new dividend tax then it is important that you seek financial advice. We would recommend investors should review the impact of the dividend tax changes might have on them.
Capital Gains Tax Rates
The rates of Capital Gains Tax – which is a tax on the profits made from the sale of assets – will be reduced for some people from 6th April 2016. The CGT rate will be reduced to 10% for basic rate taxpayers, while the rate for higher rate taxpayers will fall from 28% to 18%.
However, the capital gains tax rates due on disposal of residential property will remain 18% for basic rate taxpayers and 28% for higher rate taxpayers. The Annual CGT tax-free allowance will remain unchanged at £11,100.
Investors with assets subject to CGT, for example large share portfolios it might be worth reviewing these based on the new CGT rates and the impact of the dividend tax changes.
Making a contribution into a pension is still one of the most tax efficient investments you can make. As well as growing in a tax efficient way, pension contributions can be used to reduce your current income tax liability. If you own and run a limited company, then your company could make an employer contribution to reduce its corporation tax bill.
At retirement you will be entitled to up to 25% as a tax free lump sum and the remaining funds are used to generate a taxable income. The rules relating to pensions and retirement planning can be complicated and not suitable for everyone. We recommend you seek advice on this subject.
These are just a few of the financial advice tips for 2017/18. If you want to talk in more depth please feel free to contact us.
Over the month weeks and months, we are looking to improve the personal finance portal (PFP) for our clients. The first stage is to introduce a live chat, audio and video service whilst clients are logged into PFP. This is the first level of improvements we will be making over the coming months. The live chat service is safe and secure.
Quite often friends and clients ask me about the best pension plans and I can understand. Pensions are complicated, even more so since Pensions Freedoms came into play.Successive Governments have tinkered with the pension rules and regulations time and time again. I started in the Financial Services Industry in 1984 and I can say each year the government has made some sort of change. Sometimes for the better or worse, but usually it adds another layer of complication. Terms such as Lifetime allowance, Fixed Protection, Capped and Flexi Access Drawdown are technical terms that generally confuse the public.In its simplest form a pension is a savings contract with tax breaks written under pension rules.
“The market hates uncertainty” has been a common enough saying in recent years, but how logical is it? There are many different aspects to uncertainty, some that can be measured and some that cannot. Uncertainty is an unchangeable condition of existence. As individuals, we can feel more or less uncertain, but that is a distinctly human phenomenon.
Rather than ebbing and flowing with investor sentiment, uncertainty is an inherent and ever-present part of investing in markets. Any investment that has an expected return above the prevailing “risk-free rate” (think T-Bills for US investors) involves trading off certainty for a potentially increased return.
Consider this concept through the lens of stock vs. bond investments. Stocks have higher expected returns than bonds largely because there is more uncertainty about the future state of the world for equity investors than bond investors. Bonds, for the most part, have fixed coupon payments and a maturity date at which principal is expected to be repaid. Stocks have neither. Bonds also sit higher in a company’s capital structure. In the event a firm goes bust,
bondholders get paid before stockholders. So, do investors avoid stocks in favor of bonds as a result of this increased uncertainty? Quite the contrary, many investors end up allocating capital to stocks due to their higher expected
return. In the end, many investors are often willing to make the tradeoff of bearing some increased uncertainty for potentially higher returns.