The new tax year started on the 6th of April and with that, the opportunity to make early use of your 2022/23 allowances. Getting your money to work in a tax-efficient manner at the beginning of the tax year can make a lot of sense (see the bit on compound interest below), and whether you have a lump sum to invest, or you want to start making regular contributions, now is a good time to consider your options.
As you will be aware markets have been falling this year and values are much lower now than at the start of the year. This could mean a good buying opportunity for you to invest cash assuming that you can take a longer-term view.
To remind you, these are the current allowances you can use up:-
ISAs
Individually, you can invest up to £20,000 into your ISA account each year, with all proceeds being free of income and capital gains tax. For a married couple that is £40,000 that can be invested in a tax-free environment each tax year.
JUNIOR ISA (JISA)
The Junior Stocks and Shares ISA limit is £9,000 per tax year. If you have a child who is 16 or 17, there is a quirk that means not only do they have the £9,000 JISA allowance, but they can also use the £20,000 cash ISA allowance. So that’s up to £29,000 a year that can be put away over two tax years.
LIFETIME ISA (LISA)
Provided you are over 18 and under 40, you are able to use a LISA to help buy your first home (subject to LISA eligibility criteria), or to fund your retirement. You can pay up to £4,000 per tax year (this forms part of the overall £20,000 ISA allowance) until you are 50, and the Government will add a bonus of 25% per tax year too – up to £1,000 per tax year.
PENSION ANNUAL ALLOWANCE
You can contribute up to £40,000 per tax year (or up to 100% of your earnings, whichever is lower) and receive income tax relief at your highest marginal rate. However, the amount you can contribute begins to become restricted for anyone earning over £240,000 and could be as low as £4,000.
Fortunately, there were no changes made to the Carry Forward rule in the Spring Budget, so in some circumstances, you can also take advantage of unused pension allowances from previous years (dating back three tax years) to really give your retirement planning a boost.
You can also invest into a pension for a non-working or non-tax-paying spouse or civil partner. Similarly, you can pay into a pension for children under 18. The maximum annual contribution you can currently make is £2,880 which, along with tax relief, amounts to £3,600 a year.
*There are certain criteria for using these investment vehicles, please contact us to find out if they are appropriate for your needs. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
OTHER “NEW TAX YEAR” IDEAS
Not exactly the most fun you’re going to have of a night, but while we’re spring cleaning the planning closet and getting our “ducks in a row”, when last did you review your Protection Policies? An important part of planning is ensuring that you and your family are adequately covered. Not only does this mean that your loved ones will be taken care of if the unthinkable should happen, but that you’ll be able to rest assured knowing that it is all in hand. If you have any existing policies, make sure that they are written into a Trust to get any proceeds paid outside of your Estate on death.
So, don’t put this off, and as it’s much easier to do this together, give us a call and let us review your needs and help you look at what you may already have in place.
THAT LITTLE THING CALLED COMPOUND INTEREST…
As mentioned above, the earlier you start saving the better – just from a time point of view – obviously the longer you save a regular amount the more you will have at the end. But it’s not just how much you save, the key can be the interest or growth that you receive, and the fact that you then start to accumulate growth on not only the amount you’ve invested but the growth you’ve received. Growth received on growth, or compound interest, will over the long term, make a big difference as to how much your savings are worth in the future.
So, if you have cash sitting on deposit that you are not looking to access over the next few years, please let us know and take advantage of being at the front of the queue.
This publication has been prepared for information purposes only by Carrington Investment Consultants Ltd t/a Carrington Wealth Management and does not constitute financial advice. The value of investments, and any income generated from them, will be affected by interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. Investors should be aware that the value of units may well fall as well as rise, is not guaranteed and that past performance is not a guide to future performance. Different funds carry different levels of risk and investors may not get back the full amount invested.
