Financial Planning

Financial Planning after the budget 2021

This year the budget is more noteworthy for what stays the same (contrary to the rumours) rather than what changed.

Many clients with investments will be delighted that no change will be made to capital gains tax or to the ability to shield tax with pension contributions - despite widespread rumours that both were being targeted. Pensions Lifetime Allowance will be maintained at its current level of £1,073,100.

The opportunities remain for mitigation through careful tax and financial planning

Make the most of the Pension Contribution Relief

As more people creep into the higher rate band, there is still the opportunity to use Occupational and Self-Invested Pension (SIPP) contributions to increase the power of savings for your future self.  Your pension savings will be deposited gross in most occupational schemes, or uplifted by £200 for every £800 contributed to a SIPP.  Higher and additional rate taxpayers can continue to receive income tax reductions through the self-assessment return process, up to their Annual Allowance limits (subject to Tapering and Carry Forward rules).

Use of Capital Gains Allowance

Sales of Investments can be timed to take advantage of the annual Capital Gains Allowance. 

Some taxable gains can thus be realised and dividend generating investments repurchased inside a sheltered wrapper, e.g. and Individual Savings Account (ISA) at no immediate tax costs, with the benefit of future income streams and gains accruing free of income tax.

Use of EIS/VCT 

These are still available to reduce immediate Income tax liabilities, and hold over any capital gains but great care should be taken with these investments.

Taking your pension

Because the Lifetime Allowance is not being increased in line with inflation, anyone who is very close to the current limit should start planning on how to mitigate the Lifetime Allowance charge.  We can help with decision making by illustrating the tax impact of when, and how, you access your pension funds, and formulating a plan to minimise the tax impact, whilst achieving your retirement goals.

Inheritance Tax planning

Again the lack of an increase in the allowance - will mean that more people are affected and a greater proportion falls to be taxed. Much of this tax can be mitigated through planned gifting and spending both before and during retirement.