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 additional-rate 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.
Carol Anne Mitchell is a chartered financial planner at Executive Benefit Search
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here