'Financial Checklist' By Mike Bates of Integrity Wealth Solutions
Have your finances been impacted by COVID? Are your goals still on track?
This is the ideal opportunity to review your financial goals, here are some topics for you to consider to ensure sure your goals are on track:
Look Into Protection *
Are you prepared for the unexpected? Are you aware that you can protect your income if you were to become ill or injured? You can also protect any liabilities like a mortgage, should the worst happen. If you are unsure whether your cover remains relevant or you do not have any cover in place. Please get in touch to see how we can help.
Structuring Finances as a Couple
It is often possible for those who are married or in a civil partnership to save money by structuring finances as a couple so both individual’s tax allowances are used effectively. This could be advantageous when one of you pays tax at a lower rate than the other.
Make a Will
Research has found that over 50% of UK adults do not have a valid will. It is often an area that is overlooked but it is an essential part of financial planning. We recommend reviewing your will and beneficiary forms to ensure that they remain up to date.
ALLOWANCES
Now might be the ideal time to also review your tax affairs and ensure that you are making the most of your annual tax allowances. Below is a list of the key annual allowances to be aware of -
Pension Allowances
Each year you can pay as much as you earn, up to £40,000 (although this tapers down to £4,000 for higher earners) into a pension and benefit from pension tax relief**. This is called your annual allowance. There is also a lifetime allowance, which is the amount you can hold in pensions over your lifetime.
**The Government currently automatically tops up pension payments by 20% and those paying higher or additional rates of tax can claim back another 20% and 25% respectively through a Self-Assessment. Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change. This is relevant when using the relief at source method other methods may vary.
Pension Carry Forward
You may be able to take advantage of pension carry forward to make extra pension contributions by carrying forward unused pension allowances from the previous three years, allowing a contribution now, up to a maximum of £160,000.
ISA Allowances
The ISA allowance for 2020/21 is £20,000 for adults and £9,000 for children. You cannot carry over an ISA allowance from one tax year to the next, so make sure you don’t miss out! ISAs are also free from Income Tax and Capital Gains Tax.
The Personal Savings Allowance
The Personal Savings Allowance lets you earn interest on your savings tax-free up to £1,000 for basic-rate taxpayers, and £500 for higher-rate taxpayers. Additional-rate taxpayers don’t benefit from this.
Dividend Income Tax-Free Allowance
All taxpayers receive a £2,000 tax-free allowance for dividend income.
If you earn dividend income that takes you over the £2,000 allowance the tax rates are as follows: for basic-rate taxpayers the tax rate is 7.5%, for higher-rate taxpayers it is 32.5% and for additional rate tax payers it is 38.1%.
Capital Gains Tax Annual Allowance
Capital Gains Tax is a tax on the profits you make when you sell an asset that has increased in value (for example, a second home or painting). The gain is taxed, not the amount of money you receive from the sale or disposal.
The Capital Gains Tax annual allowance is how much of a gain you can make in a tax year without paying any tax. The allowance is currently £12,300 (£6,150 for trusts) but with the Chancellor asking the Office of Tax Simplification to review it, there is speculation that this could change.
Financial Gifts Tax Allowances
There are a number of tax-free financial gifts that you can make each year. These financial gifts leave your estate immediately so there won’t be any Inheritance Tax to pay. These include:
Unlimited gifts to a civil partner, husband or wife (if their permanent home is in the UK).
Up to £3,000 in gifts each tax year. This can be carried over for one year giving a total of £6,000.
An unlimited number of gifts up to £250 per person as long as you have not used another exemption on the same person.
Wedding gifts to a child of up to £5,000, to a grandchild or great-grandchild of up to £2,500 or to anybody else of up to £1,000.
Unlimited payments towards the living costs of a child or, elderly dependant or ex-spouse.
Regular gifts from surplus income that don’t have an impact on your standard of living.
VCTs and Complex Tax-Efficient Investments
More complex and higher-risk tax-efficient investments such as Venture Capital Trusts (VCTs) offer generous tax breaks to encourage investment into smaller, newer companies. As there is more risk involved, these are not suitable for everyone but if you are a higher-rate or additional-rate taxpayer who can tolerate a high level of investment risk, they may be attractive. To find out about the tax relief on VCT’s please do not hesitate to contact one of our specialised consultants.
Written by Mike Bates (Independent Financial Consultant)
If you need help to review your finances, we can help you build and develop your goals based on your own individual situation. Call us on 02476 388 911 or email [email protected] to set up a meeting and find out how IWS can help you live the best life you can, with the money you have.
* Information provided for marketing purposes