New (Tax) Year’s Resolutions

Whilst the advent of a new tax year may not quite mark an opportunity for personal reinvention in the way that the “traditional” new year does, with many legislative and tax changes taking affect from April, it is the perfect time to get on top of your finances. (…Plus, being able to dub my already-failed new year’s resolutions as “practice” for the new tax year has quite the appeal!)

I have therefore detailed below some simple tips to make the 2019/20 tax year the year of taking control of your wealth. #NewTaxYearNewMe

Income

Although income tax and National Insurance thresholds will be increasing for the forthcoming tax year (meaning take home pay should increase), the statutory minimum pension contributions for employed individuals under Auto-Enrolment are also increasing, which may reduce your net income each month.

The way to counter this whilst still maximising your retirement savings? Ask if your employer operates a “salary sacrifice” scheme. This can boost your take home pay whilst also enhancing your retirement savings. For more information on how this works, I have linked a previous blog I have written on this topic below:

Expenditure

It has been all over the news that Council Tax and utility bills will be rising for many from 1 April. Whilst these price hikes are seemingly across the board, we can still make sure we are not overpaying by doing our research and taking advantage of exemptions and reliefs available to us.

For your utility bills, take advantage of price comparison websites to ensure you are on the best deal. There are now even comparison websites that will handle the physical switching process for you, so you no longer need to endure 47 minutes of Greensleeves on loop to end your existing contract.

Unfortunately, we can’t really get a “better deal” on our Council Tax, unless we plan on moving house altogether. There are, however, discounts and exemptions available if you are a single occupant, a student/student nurse, in the armed forces, disabled and/or living with a disabled person or undertaking a significant renovation on a property. Contact your local Council to determine whether you would be eligible to a reduction to or exemption from your Council Tax bill.

Assets

The amounts you can invest into tax efficient savings vehicles such as ISAs and pensions remains unchanged for the 2019/20 tax year, although the capital gains tax (CGT) exemption will be rising to £12,000 per person. This means that, if we sell assets which have increased in value since originally purchased, we will pay lass tax on the capital “gain” realised.

Now, the more cynical amongst us may point out that uncertainty surrounding Brexit may mean the chances of investors actually achieving capital gains this tax year is pretty slim, rendering their enhanced annual CGT exemption somewhat redundant. Your annual CGT exemption can, however, still be used to offset the gains on sales of other privately-owned assets, such as rental properties; the values of which are arguably more resilient during times of an uncertain stock market.

It is important for investors to remember, however, that the tax rates that apply to gains on the sale of physical property are not the same as the tax rates on the gains arising from sale of stocks and shares investments. Investors looking to make best use of their CGT exemption for the 2019/20 tax year should therefore contact a financial adviser.

Liabilities

The Bank of England base rate has slowly crept up over the last couple of years meaning that the cost of borrowing should be beginning to rise for households. This, coupled with the uncertainty of Brexit’s impact on future interest rates, has left borrowers unsure as to whether to commit to a new mortgage or finance deal now, or wait to see how things play out with the economy over the next few months.

Although there is some merit in the “wait and see” approach, it all boils down to your risk appetite. Some individuals can afford to take more risk with interest rates both financially and psychologically, whereas some need certainty of a fixed repayment to ensure they can manage their monthly outgoings.

Regardless of where you view yourself on this risk spectrum, you can keep yourself ahead of the curve by “stress testing” your liabilities. For example, as yourself:

  • If interest rates went up 3%, could I still afford my monthly mortgage payments?
  • If I was unable to work due to accident/injury, how long could I meet my mortgage payments for from my savings?
  • If I died, could my spouse still maintain the mortgage payments alone, or would they and my children be forced to downsize?

Although “stress testing” can often be uncomfortable (as it reveals weak spots within your financial situation), view it as an opportunity to start building defences in the areas you are most vulnerable. Speak to our Financial Planning team today about protection for you and your family.

If you would like to discuss this blog in more detail please email Katy Allen or call us on 01772 821 021.