Make the most of this year’s tax allowances to fight back against financial headwinds
“Head in the oven, feet in the freezer” might be a good way to summarise many people’s finances at the moment as we juggle the money we couldn’t spend during the pandemic with increasing bills and tax.
Stock markets have also been bouncing around since the start of the year as they adjust to a new reality of enduring inflation and higher interest rates.
Reversion to the mean
There is always the temptation to believe that it is different this time and we have broken the rules of the market and created a new world where economic fundamentals no longer apply and we can all enjoy something for nothing. Share prices will always go up and we can keep on borrowing money at negligible rates of interest.
The truth is that we have to get up every morning and create value with a product or a service and the better we get at doing that will be the force that drives the real growth in the economy and our wealth. More than 100 years’ of experience has taught us that markets will always come back from their highs and lows to rejoin this underlying trend of improved efficiency.
We have had an exceptionally good run for investments since the financial crash, but As Warren Buffet famously said, you only see who is wearing trunks when the tide goes out. So what should you be doing for your money in these more turbulent times?
Stick to the Plan and do the basics right
Your Financial Life Plan will expect you to make the most of your annual tax reliefs so, with the end of the tax year looming on April 5th, it’s a great time to make sure that you make the most of your allowances.
Here’s a quick reminder of what to think about
- The returns provided by the tax advantages of pensions and ISAs are valuable as you don’t pay Capital Gains Tax (CGT) on the growth. The current ISA limit is £20,000. But if you have a spouse or partner, you can each have an ISA, effectively doubling the allowance. If you are investing for more than say 5 years, it is worth considering a stocks and shares ISA rather than a Cash ISA.
- You can also invest up to £9,000 in a Junior ISA on behalf of someone under 18 if you are their parent or guardian.
- You can pay in up to £40,000 or 100% of your relevant earnings (whichever is lower) in pension contributions and claim Income Tax relief for this tax year. You can also carry forward unused allowances from the past three tax years.
- To reduce any Inheritance Tax liability, you can give away up to £3,000 a year. You could make these gifts into a Junior ISA.
If you think that recent events have knocked your Plan off course, then get in touch and let’s nudge it back on track so that it always there to guide your financial decisions.
Trusting your (up to date) Financial Life Plan and making the most of your annual tax allowances are two great ways to make sure your modesty will be preserved should there be a change in the tide.
The value of investments may fall as well as rise. You may get back less than you originally invested.
Tax treatment varies according to individual circumstances and is subject to change.
Get in Touch
If you want to make the most of this year’s tax allowances to fight back against financial headwinds, then please get in touch.
We offer a free initial consultation at our expense, to all prospective new clients.