January is traditionally a time to reflect, look forward and resolve to adopt better practices or meet goals you may have set yourself.  One area we can have control over and influence is our financial health, and the act of planning tends to quell the fear of uncertainty as it focusses minds on the future.

Considering the Bank of England’s recent interest rate rise and the forthcoming Spring Statement on 23 March, it is not too late to consider whether you have fully utilised all the tax planning allowances available to you. In preparation for the end of the tax year, we have set out five tips for you to consider now and act on any which are relevant to you:

1 – Top up your pension

Pension contributions have been – and continue to be – one of the most tax efficient and flexible ways to save money. Currently, the annual allowance for contributions is £40,000, a figure that has not changed since 2016. However, the figure does decrease if your income is higher than £240,000. It is also key to note that any unused allowances from the previous three tax years can be “mopped up”, so now is the ideal time to perform your own financial health check and utilise any unused allowances.

2 – Utilise your annual Capital Gains Tax (CGT) allowance and consider realising any gains

Up until the end of the tax year, each individual can use their £12,300 CGT exemption (2021/22) to realise capital gains from investments without paying additional tax. Remember that spouses/civil partners can transfer assets between themselves, allowing both individuals to benefit from this individual exemption.

Although it seems unlikely that the exemption will be withdrawn, we cannot rule out that the CGT rates may increase and using gains effectively is a sound financial decision and could be extremely advantageous. Therefore, it is preferable to realise any gains before the Chancellor of the Exchequer’s Spring Statement. Current CGT rates for those in the higher tax band or additional rate taxpayers are 20% on gains from chargeable assets and 28% on gains from residential property. If rates did rise to match income tax, as has been speculated, that could see some capital gains being charged at 45% tax.

3 – Review your mortgage

Due to the uncertainties caused by the COVID-19 pandemic, interest rates have been at historically low levels for quite some time, with the Bank of England increasing interest rates from 0.1% to 0.25% for the first time in three years last December. This can have positive and negative effects, especially as the rise was driven by high UK inflation, as prices have been rising at their fastest rate for some time. The central banks believe that increasing interest rates will encourage people to save and discourage borrowing, therefore, taking cash out of the economy and slowing things down.

The next interest rate decision will take place in February, so now is an opportune time to review your mortgage and lock in a fixed rate deal while interest rates are low.  It is unlikely that interest rates will drop below where they are currently sat.

4 – Maximise your ISAs and JISAs

It is highly unlikely that the Individual Savings Account (ISA) allowance will be removed, but it is still important to take advantage of this tax efficient savings scheme and maximise contributions of £20,000 per person annually, where possible. It can also be valuable in the long-term to make use of the Junior ISA (JISA) allowance with a contribution £9,000 per child.

5 – Consider Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS)

For individuals with significant income and appetite for risk, it may be worth considering the 30% income tax relief that can be gained from investing in private equity through VCT and EIS. While these schemes are extremely tax efficient vehicles, it is crucial to take care when investing due to the high-risk nature associated with investing in small businesses.

We’re here to help

The five action points raised above may have been considered as part of your annual new year financial review. If not, we suggest that we consider them together, so that we can ensure that all the tax planning allowances available for you have been fully implemented prior to the end of this financial year, and before the Spring Statement.

If you would like to discuss any of the above, please contact your usual Partners Wealth Management adviser, or call us on 020 7444 4030 for an initial conversation.

The contents of the article have been prepared solely for information purposes. The article contains information on financial products and services and such information is designed for and addressed solely to individuals seeking generic industry information. This document reflects our understanding of current legislation. Past performance is no guide to future returns.