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06 Apr 2021
Start planning for the new tax year
Key takeaways from the Chancellor’s Budget.
Rishi Sunak delivered his first Budget as Chancellor on 3 March 2021, outlining some important announcements that could affect your personal finances for the financial year ahead.
Here’s a summary of some of the announcements and important key points to consider with regards to financial planning:
Despite predictions that the many tax advantages of pensions could be cut back, they were left untouched.
The most significant change was the decision to freeze the lifetime allowance (the amount you can hold in pensions without paying a tax charge) at its current level of £1,073,100 until April 2026.
Pensions remain one of the most tax-efficient ways to invest, particularly for higher/additional rate taxpayers. In addition to tax relief on what you pay in, any growth is free of UK income tax and capital gains tax. And any remaining funds in your pension on death are usually free of Inheritance tax after your death.
Now is a good time to ask yourself: are you making the most of the tax advantages that pensions offer?
The Chancellor left ISA allowances unchanged. Any growth within an ISA remains free of UK income tax and capital gains tax and, therefore, is a key consideration in financial planning.
Will you make the most of the 2021/2022 tax year’s £20,000 ISA allowance? Using a stocks and shares ISA can be a good way to invest over the long term and ensure your investments remain tax efficient.
Capital Gains Tax (CGT)
Despite proposals to increase CGT, there were no new announcements, other than the decision to freeze the annual tax-free allowance at its current level of £12,300 until April 2026.
As part of financial planning, it still makes sense to make as much use as possible of the valuable ISA and pension allowances, to ensure your funds are held in the most tax-efficient manner.
Inheritance Tax (IHT)
Again, no changes were made to the standard nil-rate band of £325,000 and the residence nil-rate band of £175,000, both of which have been proposed to remain frozen until April 2026.
If you’re thinking about how you can reduce the inheritance tax your beneficiaries have to pay when you die, there are various options a financial adviser can explore with you.
Should you be impacted by any of the changes announced in the Budget or wish to ensure your investments are held in the most tax-efficient manner, now is a good time to seek professional advice to gain a head start to the new tax year ahead.