The golden rule for your finances this year? Plan early

April seems a long way off when you’re in the midst of a dark and damp January. Especially when we’ve only just taken down the Christmas tree and are still contemplating Dry January…

But these next few months are crucial for dotting the i’s and crossing the t’s when it comes to your finances. Now is a good time to check in on things like whether you’ve taken your full ISA allowance or need to make any tax-free gifts.

In addition, there’s been so much change in the UK over the last year (not least, having three Chancellors in as many months) with potential impact on your income and investments.

So below, we’re taking a look at some of the important things you should consider between now and April.

Let’s start with income tax….

One of the biggest changes for taxpayers made by Chancellor Jeremy Hunt’s in his autumn statement (at least for those in England and Northern Ireland) was lowering the starting level for additional-rate income tax to £125,140. From April 6, this change will push an estimated 250,000 taxpayers into the highest tax bracket.

Personal allowance, basic and higher-rate income tax thresholds remain frozen until April 2028 (they had been due to lift in two years’ time). But this could actually mean some find themselves in a higher tax bracket if their salaries have risen over the year (salaries rose on average 6.1% in 2022[1]).

Cuts for capital gains and dividend tax allowance

You could also end up paying more tax on your investments or when you sell assets.

The allowance for when you need to start paying capital gains tax (CGT) – tax on the profit you pay when you sell something of value – will drop dramatically from a £12,300 limit to £6,000. It will drop even further to just £3,000 in 2024.

Meanwhile, the tax threshold for dividends (income from your investments) is also being slashed from £2,000 to £1,000 (falling further still to £500 from April next year).

Inheritance tax frozen

There’s also potentially bad news when it comes to inheritance tax (IHT). IHT thresholds not moving coupled with rising house prices[2] mean that more people could end up paying more tax on what they inherit. The ‘nil-rate’ band (the threshold before you’re liable to pay IHT), hasn’t risen since 2010/11 and will stay at £325,000 until 2028, while the resident nil-rate band (when you leave your home to direct descendants) is also unmoved at £175,000.

Higher thresholds for stamp duty

Some good news if you’re buying a property, is that the level before you start paying stamp duty has gone up. You won’t need to pay stamp duty in England on a property worth less than £250,000. And the threshold for first-time buyers has also increased from £300,000 to £425,000.

This isn’t the case everywhere though. If you’re buying a property in Scotland, where the rules are different, the thresholds stay the same. Rates have also increased if you’re buying a second home, with the ‘additional dwelling supplement’ rising from 4% to 6%.

No more healthcare levy on National Insurance

National Insurance (NI) saw a great deal of chopping and changing in 2022, so it’s maybe a relief that it’s being left untouched. The government controversially increased NI rates last year to pay for health and social care. The levy was abolished by Kwasi Kwarteng, and no further changes are on the cards for the next financial year. Employees will pay 12% on earnings between £12.570 and £50,720 and has dropped back down to 12% and 2% on anything over £50,270.

You could end up paying more council tax

Finally, some council tax bills could also be going up. From April 2023, local authorities in England can raise the charge to 3% without putting it to a vote. Some councils will also be able to charge an additional 2% if they quality for a social care precept. (In Scotland, there are no limits on council tax bills for the year ahead – although the government has said councils should act ‘responsibly’).

If the above is starting to sound daunting, don’t worry. These are the sort of things we’ll look at in detail when it comes to your annual review. In these sessions, we’ll discuss with you the potential impact of these tax changes on your finances, how they might affect your plans and how we can help you manage them.

And finally, one more reason to get your planning done early..

It’s always important to think ahead, but if you’re hoping to start drawing down from your pension this year, there’s even more impetus to plan early.

Why? Because nationwide there has been an increase in retirees reporting delays in accessing their hard-earned pensions. By-and-large, personal pension transfers are unaffected, but in some cases occupational pension plan transfers are taking as much as six months or more to go through.

Some of these delays are due to Covid-related backlogs, or other more recent factors like postal strikes. But in some cases, the delays have been caused by new legislation.

The Pension Schemes Act gives trustees the power to refuse transfers if they believe there’s a heightened risk the holder could be at risk of being scammed.

Of course, this legislation is a good thing and ultimately designed to protect your pension. But it could also potentially hold up legitimate transfers. The Pension Scams Industry Group has previously estimated around 5% of all transfer requests have been flagged for causing concern. One of our clients even had to return to work as they’d still not received their pension after a year.

Even though this isn’t the norm. It can be very frustrating when you’re waiting to access something you’ve paid into for so long.

The good news is we can help smooth the process for you. Some of the questions designed to spot a scam can be tricky and going through this is difficult to do on your own.

Just now, we’re helping a number of our clients navigate this process. If you want to find out more, please give us a call.

[1] Office for National Statistics, Average weekly earnings in Great Britain: December 2022

[2] Office for National Statistics, UK House Price Index: October 2022