Make fi­nan­cial plan­ning a New Year res­o­lu­tion and don’t for­get that ISA

The Herald - - BUSINESS - FUN­DA­MEN­TALS

NEW Year is tra­di­tion­ally a time for res­o­lu­tions. Many in­volve join­ing gyms or start­ing di­ets, but what about your fi­nan­cial health?

The last few months of the tax year can see a surge in ac­tiv­ity as many peo­ple con­sider us­ing their tax al­lowances be­fore they lose the abil­ity to do so, but a dili­gent ap­proach and con­sis­tent for­ward plan­ning can lead to a much health­ier over­all fi­nan­cial po­si­tion.

Af­ford­abil­ity and suit­abil­ity are key, but there are many as­pects that could and should be con­sid­ered as part of your New Year fo­cus. Have you used your ISA al­lowance in full, for ex­am­ple? The limit for 2016/17 is £15,240 (ris­ing to £20,000 in April) and if it is not used each tax year it is lost.

An ISA is an ex­cel­lent way to save free from in­come tax and cap­i­tal gains tax and can be a use­ful ad­di­tional sav­ings ve­hi­cle to boost funds in re­tire­ment.

What about your £11,100 cap­i­tal gains tax al­lowance? This is in­valu­able in man­ag­ing your port­fo­lio gains on a reg­u­lar ba­sis. Fur­ther, is your port­fo­lio shaped to take ad­van­tage of the £5,000 div­i­dend al­lowance?

The re­cently in­tro­duced pen­sion free­dom rules brought flex­i­bil­ity to the fore, but it is sen­si­ble to check that your cur­rent plan is a mod­ern, flex­i­ble con­tract and that your nom­i­na­tions are up to date. Your nom­i­na­tion con­firms the per­son/ peo­ple you would wish to in­herit your out­stand­ing pen­sion pot af­ter your death.

Fur­ther, have you max­imised your pen­sion con­tri­bu­tions this tax year? Higher or ad­di­tion­al­rate tax re­lief can be ob­tained if ap­pro­pri­ate on con­tri­bu­tions made be­fore April 17.

The an­nual al­lowance (the rate at which you can get max­i­mum tax re­lief) is cur­rently £40,000, but there are re­stric­tions for higher earn­ers who may see their al­lowance re­duced to £10,000.

How­ever, there is also an op­tion to utilise “carry for­ward” of un­used pen­sion al­lowances for the three pre­vi­ous tax years so if you have not max­imised your con­tri­bu­tions, and have the rel­e­vant earn­ings to do so, you could po­ten­tially con­trib­ute in ex­cess of this year’s stan­dard an­nual al­lowance of £40,000.

The life­time al­lowance re­duced from £1.25 mil­lion to £1m in April this year. This is the limit on the amount of pen­sion ben­e­fit that can be paid with­out trig­ger­ing an ex­tra tax charge. There are op­tions for those who have funds in ex­cess of this level but some may have to move quickly.

In­di­vid­ual pro­tec­tion 2014 will main­tain the life­time al­lowance to the lower of £1.5m or the value of ben­e­fits at April 5, 2014 but must be ap­plied for be­fore April 2017. In­di­vid­ual pro­tec­tion 2016 will main­tain the life­time al­lowance at the lower of £1.25m or the value of ben­e­fits at April 5, 2016.

While there is cur­rently no end date for ap­pli­ca­tions for in­di­vid­ual pro­tec­tion 2016, for any­one who may have larger funds, it will pay to take pos­i­tive ac­tion to check val­ues and avail­able pro­tec­tions prior to April this year if you have not al­ready done so.

Fi­nally, in­her­i­tance tax (IHT) was once said to be a “vol­un­tary levy paid by those who dis­trust their heirs more than they dis­like the In­land Rev­enue”. There are many le­git­i­mate steps that can be taken to mit­i­gate your IHT li­a­bil­ity in or­der that the tax man does not in­herit more than your chil­dren.

IHT is paid at 40 per cent on in­di­vid­ual es­tates greater than the cur­rent nil-rate band of £325,000. How­ever, it is fully in­her­i­ta­ble by spouses and so can be up to £650,000 on se­cond death.

There is also a new res­i­dence nil-rate band be­ing in­tro­duced and, with the ben­e­fit of care­ful plan­ning, IHT can cer­tainly be re­duced or even avoided com­pletely.

Essentially, as part of your fu­ture fi­nan­cial plan­ning, util­is­ing key re­liefs and al­lowances mean that you can in­vest sig­nif­i­cantly and le­git­i­mately for a health­ier fi­nan­cial fu­ture for you and your fam­ily.

‘‘ A dili­gent ap­proach and con­sis­tent for­ward plan­ning can lead to a much health­ier over­all fi­nan­cial po­si­tion

Carol Anne Mitchell is a char­tered fi­nan­cial plan­ner at Ex­ec­u­tive Ben­e­fit Search.

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