With Careful Financial Planning, You Can Still Have a Bright Financial Future by Taking Advantage of the UK’s Generous Savings and Investment Landscape.
With high inflation, rising interest rates and a worrying cost of living crisis it is understandable that the Chancellor’s attempts to balance the books were going to be challenging to say the least.
DOOM AND GLOOM
It is no surprise, therefore, that as well as more explicit tax increases, such as:
- the reduction in the capital gains tax allowance;
- the slashing of the dividend allowance; and
- the expansion of the 45% top rate income tax band,
we have also been presented with a combination of “stealth” tax increases through measures like:
- the freezing of income tax thresholds; and
- the freezing of the inheritance tax allowance.
Given this backdrop, after watching the news this afternoon, anyone could be forgiven for feeling negative about their finances for the next few years.
However, do not be swayed too much by the media. It is important to remember how generous certain aspects of the personal financial planning landscape still are.
THREE EXAMPLES OF WHY IT'S NOT SO BAD
1. Income tax – if you are retired and have a generous income of, say, £50,000 p.a. before tax, the first £12,570 of your income is tax free, with the balance taxed at just 20%, giving a total income tax bill of just £7,486. Less than 15% of this income is being taken away from you in tax.
2. ISAs (Individual Savings Accounts) – you have an allowance of £20,000 each year and any growth or income that builds up within your ISA portfolio is extremely tax-efficient. For those households who have the financial means to save and invest over a sustained period of years, it is possible to build up a substantial six or even seven-figure tax-sheltered portfolio.
3. Pension contributions – if you are fortunate enough to earn over £240,000 p.a. or have already accrued large enough pension assets to be affected by the Lifetime Allowance, you are restricted on what you can sensibly pay into a pension.
But for everyone else, subject to your income, you can contribute up to £40,000 p.a. to your pension and not only receive a very generous tax break on money that you pay in, but also benefit from very tax-efficient returns on a year-by-year basis.
And if that is not enough, once you reach retirement you have plenty of flexibility around how much or how little you draw from your fund each year. Finally, anything that is left over after your death can be inherited by your loved ones in a tax-efficient way too.
A BETTER FUTURE
Right now, the understandable challenge for many households is working out how best to fund their present, not their future.
But if you are already in the positive position of having built up savings and investments or have the means to be able to do so going forward, with careful planning the personal finance landscape is perhaps more generous than today's news bulletins might lead you to believe.
If you would like impartial help thinking through what you can do to plan your own financial future, please call us on 020 3488 9505.
The value of your investments can go down as well as up, so you could get back less
than you invested.
Tax and Estate planning is not regulated by the Financial Conduct Authority.