Post budget tax year end
Post budget tax year end is a guest article by freelance financial journalist and presenter, Sam Shaw.
As I write, I note the date and realise it’s clearly too late to be making recommendations about anything that needs to be in place before the end of the 2014/15 tax year. Unless making panicked financial planning decisions is how you want to spend your Easter.
That pesky holiday coinciding with the tax year-end will have scuppered many of those last-minute dashes to make use of the more generous limits – which are about to become even more generous.
Mr Osborne clearly had ‘the saver vote’ in mind when he delivered the new rules on ISAs in the Budget a couple of weeks ago.
Just getting our heads around last year’s New ISA – or NISA, coined immediately – we have already been granted a higher limit, a levelling of the playing field between investments and cash savings accounts, more breadth of ISA-able investments to name several key changes to the popular savings vehicle.
But now we have the added freedom of – being able to withdraw and reinvest in your ISA within the same financial year may come as a gift for those who like to use their savings accounts more actively – for specific short-term events, for example.
This newfound flexibility will take effect in the autumn, but alongside the £1,000 or £500 (basic or higher rate) tax-free savings allowance, many have now questioned the rationale for cash ISAs at all.
With enough marketing behind them, the vehicle has clearly been working.
According to BlackRock’s recent Investor Pulse Survey, 39 per cent of Britons plan to use their ISA to fund their retirement and 27 per cent intend them to help build long-term wealth.
However Alex Hoctor-Duncan, who heads up the retail business at the asset manager, said: “Our research found that nearly seven in ten ISA holders looking to retire in the next decade only save into cash ISAs.
“The increased flexibility may provide the nudge savers need to think outside of cash going forward, particularly when combined with the new personal savings allowance, giving tax relief on the first £1,000 of savings income for basic rate payers.”
With the threat of inflation eating away at our savings looming – even at today’s low levels – even the most rate-conscious saver might struggle to keep ahead.
Hoctor-Duncan added: “With the new Personal Savings Allowance, those saving in cash ISAs may wish to consider whether this is the best home for their savings and if they could put their money to work in income generating investments.”
There was also the additional bonus to those desperate to get on the housing ladder as the chancellor also gave a helping hand with his Help-to-Buy ISA, which will see the government meet every £1,000 saved towards a first property with £250, up to a total of £3,000.
The H2B ISA can go towards any property worth £250,000 or £450,000 in London.
There are annual limits in place, so it’s for the slow and steady savers, but critics have suggested the housing market doesn’t need more demand it needs greater supply, and if the rate of residential price increases continues at its current pace, then whether you can put down £12,000 or £15,000 seems a bit moot.
Sadly, lack of affordable supply is the problem, and it seems there is a risk this ‘best intention’ kicker might actually push house prices upwards in the medium term as even more buyers swarm around the same number of homes.
Another new feature within the ISA regime is that any ISA allowances you’ve built up can be passed on to your spouse when you die, retaining the tax benefits, including any tax-free income.
At this time of year it is important to remember spousal transfer – you each have a personal annual tax allowance of £10,000 so may sure you make the most of it.
Pension savers weren’t so lucky.
Reducing the tax-free lifetime allowance for pensions from £1.25m to £1m won’t have come as a huge surprise to anyone with more than a cursory interest in the subject, as pensions tax relief was always going to be a target in the last Budget before the General Election, but it seems to have been an unfair swipe at anyone bothering to invest their pension in well-performing funds.
Once you take out the 25 per cent tax-free lump sum, you could hit £750,000 before you know it.
We’re pretty sure you ticked off your tax-year end checklist, or at least the key things and if you’re too late this year then make a big effort to be in a better position next year. Perhaps even start early rather than scramble around in March as many tend to – it will help with stress levels and availability of your accountants and advisers if nothing else.
Once you’ve got your ISA sorted, might you want to look at some other more esoteric – but highly tax-efficient – vehicles such as venture capital trusts or enterprise investment schemes? You might just save yourself 30 per cent.
With pensions liberation kicking in on Monday, the time may be ripe for a review. If you haven’t already done so, arrange a meeting with your adviser, run through your options and perhaps start making the most of the new rules.
You never know, in just over a month’s time we may have a new leadership to contend with who will have a few ideas of their own, which could change everything again.
Sam Shaw, Freelance Journalist & Presenter
Sam Shaw is a highly experienced financial journalist and presenter with a background in advertising, marketing and television production and is a highly regarded commentator in the consumer investment press. This is a guest post and the views here do not necessarily concur with those of Investment Quorum. In fact it is very often the case that we are largely in disagreement but we respect the opinions and views of others. Guest posts may appeal more to some than others and may often have an industry knowledge expectation.
Investment Quorum is authorised and regulated by the Financial Conduct Authority.
If you enjoyed this article feel free to share it via any of the social media sharing buttons below.
Should you wish to link to this article from your own website please feel free to do so.