It’s that time of year again. There are a number of things that are worth checking before the end of the financial year and the start of the new. Over the next few weeks, we’ll look at the main areas of financial planning that might benefit from a review.
The five areas for review with summaries are:
Capital Gains Tax (CGT) is a tax on the profit made when selling (or ‘disposing of’) an asset that has increased in value. It’s the gain made that’s taxed, not the amount of money received. Examples of assets include shares, property, and business assets. The rate of CGT depends on the asset type and the individual’s income tax band. There are annual tax-free allowances and certain reliefs that can reduce the taxable gain. For residential property and carried interest, higher rates apply. CGT is not charged on assets passed on death, but inheritance tax may apply.
Individual Savings Accounts (ISAs) are financial products designed for savings and investment, offering tax-efficient benefits. Earnings from ISAs, including interest, dividends, and capital gains, are exempt from UK income and capital gains taxes. There are several types of ISAs: Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs, each catering to different savings and investment needs. The government sets annual limits for contributions across all ISA types. ISAs are available to UK residents over 18 (16 for Cash ISAs), providing a flexible way to save and invest without worrying about tax implications on the returns.
National Insurance Contributions (NICs) are payments made by employees, employers, and the self-employed to fund state benefits. They are a key part of the UK social security system, contributing towards state pensions, unemployment benefits, and the NHS. The amount paid depends on earnings and employment status. For employees, NICs are deducted from wages along with income tax. Self-employed individuals pay NICs based on their profits. There are different classes of NICs, each with its own rules and rates. While NICs are mandatory for those earning above a certain threshold, they also entitle contributors to certain state benefits.
Pension contributions are payments made towards retirement savings. There are three main types: State Pension, Workplace Pensions, and Personal or Private Pensions. The State Pension, funded by National Insurance contributions, provides a regular income in retirement. Workplace Pensions involve both employee and employer contributions, with the government adding tax relief. Auto-enrolment laws require most UK employers to enroll eligible employees into a workplace pension. Personal Pensions are arranged by individuals with a pension provider, benefiting from tax relief on contributions. The amount contributed, along with investment performance, determines the pension pot available upon retirement.
Annual tax exemptions are specific allowances and reliefs that reduce the amount of tax individuals owe. Key personal exemptions include the Personal Allowance, which is the amount of income one can earn before paying Income Tax, and the Capital Gains Tax allowance, setting a threshold for tax-free capital gains each year. There’s also a Dividend Allowance for tax-free dividend income. For Inheritance Tax, there’s an annual exemption for gifts. These exemptions are designed to provide financial relief and encourage saving and investment.
In the run up to the end of March, we’ll look at each in turn in more detail using the current HMRC figures for taxes, allowances and investments. Of course, you don’t have to wait until then if there is something that you would like to discuss now. You can call us on 0131 226 6700.
The Financial Conduct Authority does not regulate Tax Planning.
The value of an investment may go down as well as up, and you may get back less than you originally invested. Past performance is not a reliable indicator of future returns.
