lumin news Issue 8 / Summer 2023

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Page 2 lumin news 8 / summer 2023 Start the tax year on the front foot The earlier you plan, the greater your choices and the more potential there is to maximise your financial efficiencies and make tax savings. Here we provide an overview of key factors to consider in the 2023/ 24 tax year. MARTIN COTTER Managing Director martin.cotter@luminwealth.co.uk Phone 01727 893 333 Now could be a good time to hone in on start-of-thetax-year basics; namely implementing easy tax wins and conducting a review of your finances. Here are some key things to consider: ISA and pension allowances Thousands of pounds can be saved each tax year by doing the basics well. Each adult can pay £20,000 into an ISA annually. Under-16s have a £9,000 annual allowance, while those who are 16 or 17 can additionally contribute up to £20,000 into an adult cash ISA equivalent. We recommend contributing as soon as you can, as leaving it to the end of each tax year will see you miss out on significant growth over time. Flexible ISAs allow you to withdraw money and replace it during the relevant tax year, without affecting your ISA allowance. It’s a similar story when it comes to pensions. Earners should consider paying in at the start of the tax year (not applicable for those subject to a tapered annual allowance) and explore whether they are eligible to ‘carry forward’ any unused annual allowance from previous tax years. Non-earners can contribute up to £2,880 (net) to personal pensions and benefit from tax relief. The standard annual allowance has risen from £40,000 to £60,000, a Key factors for the 2023/24 tax year Facts & stats 50% increase that provides a valuable incentive for certain savers to contribute more to their pension. Harvesting gains Each adult currently benefits from a capital gains tax Annual Exempt Amount of £6,000 (this will be cut to £3,000 from April 2024). This can be used to harvest investment gains annually and avoid or reduce a tax charge. The allowance must be used before 5 April 2024, or it will be permanently lost. The timing of realising gains (in line with market sentiment) is an important consideration. Action & timing ISA £20,000 allowance per adult; £9,000 for under-16s Consider contributing as soon as you can Pension for earners Consider topping up your pension Can be done early in the tax year, except for highest earners 1 Pension for non-earners £2,880 can be contributed to anyone’s personal pension Consider contributing as soon as you can Capital gains harvesting Use or lose the £6,000 tax-free capital gains allowance 2 Realise gains as part of ongoing monitoring of your investments Investment strategy Review for changes in your Review annually (asset mix) circumstances and rebalance Mortgages Renewal Plan remortgaging 6 months before fixed rate ends; review annually Estate planning Valid will and power of attorney; mitigate IHT liabilities Start your estate planning early; review your will frequently 1 In light of the tapering (reduction) of the standard £60,000 annual allowance 2 £3,000 from 2024 / 25 tax year Review your investment strategy Does your strategy factor in a diversified asset allocation and match your latest goals? How does your overall performance compare against annual benchmarks? The start of a tax year is a good time to do an audit of your investment strategy. A free portfolio health check can ensure your investments are set up to meet your goals. Mortgages planning Fixed-rate mortgages often allow for voluntary overpayments of up to 10% of the outstanding mortgage balance without triggering early repayment charges. Those adopting this strategy should account for the impact on their ISA and pension contributions. It’s a good idea to plan re-mortgaging around six months before a fixed rate ends, and review your repayment plan annually. The start of the tax year is an opportune time to review your current position and plan for the tax year and the relevant allowances. Creating an annual plan that covers your pensions, investments, mortgage and other areas is an excellent way to start the tax year, and it can also help keep you on track to meet your financial goals. To discuss your options for the tax year, and how this can form part of an overall financial plan, please contact a Lumin financial adviser on 03300 564 446. FACTSHEET ISAs vs pensions Request a free factsheet via enclosed response card, info@luminwealth.co.uk or call the Lumin team on 03300 564 446
lumin news 8 / summer 2023 Page 3 How higher earners can cut tax bills with pension contributions MY TIP The cut to the additional rate threshold for income tax may make pension contributions even more attractive for those with large salaries. SARA MOORE Senior Financial Consultant sara.moore@luminwealth.co.uk Phone 01727 893 333 The additional rate threshold was cut to £125,140 from £150,000 from 6 April, so certain higher earners will see a larger proportion of their salary fall into the highest income tax bracket. But careful planning can see pension savers reduce their tax bill – and boost their retirement prospects. Some individuals could save up to £81,000 on tax in one year. Avoiding the personal allowance trap Pensions can be particularly valuable for those with earnings above £100,000. If you earn over £100,000 per year the minimum pension tax relief your contribution will get is 45%, and for certain individuals it can be as high as 60%. Expert, independent advice can help provide clarity. This is one of the areas covered in our free Financial Health Check (see column). Cut tax bills with prudent planning The standard annual allowance for pension contributions has risen from £40,000 to £60,000. Those with an Achieve large tax savings with a pension contribution Assumptions: Income tax on £150,000 net relevant earnings without or with maximum £60,000 pension contribution. Income tax £60,000 £50,000 £40,000 £30,000 £20,000 £10,000 £0 No contribution adjusted income that’s above £260,000 will see their annual allowance tapered down to a new minimum threshold of £10,000. As the example (above) shows, someone with earnings of £150,000 could contribute £60,000 to their pension, and achieve total tax savings of £30,000 (including the top-up contributions paid by the government). Certain individuals may be able to make higher contributions by ‘carrying forward’ unused annual allowances from the three previous tax years. You must use the annual allowance in the current tax year first, before carrying forward from prior years. Carry forward from 2020/21 must be used in the 2023/24 tax year, or it will be permanently lost. £30,000 tax savings 1 £60,000 contribution 1 Some of the tax savings may come in the form of the government paying money into your pension account Inheritance tax Your pension can be passed on to beneficiaries free from inheritance tax. It may be possible to repeat this over several generations, leading to even greater tax savings. Pensions passing to beneficiaries before the age of 75 can also be taken free from all income tax. A financial adviser can help you to optimise tax allowances. Call 03300 564 446 for more details. FACTSHEET Tax-saving tips for pensions Request a free factsheet via enclosed response card, info@luminwealth.co.uk or call the Lumin team on 03300 564 446 MARTIN COTTER Managing Director of Lumin Group Statistics show that many people spend more time planning for a holiday than they do on planning for retirement. Savers can spend their whole career working to build up assets for retirement, but often fail to organise and optimise these assets. To use an analogy people’s finances can often look like the ‘attic’ at home. For some their attic is filled with a disorganised assembly of items that have been put away for use at a later date. For others it is a neatly ordered and catalogued collection. Either way, a comprehensive audit of your attic can check that everything is in good condition and working order for when it is needed during retirement. My Tip: A Financial Health Check* with a financial adviser can analyse all the contents of your attic and outline where improvements can be made to fully optimise your wealth for retirement. To book a complimentary Financial Health Check please scan the QR code, or call 03300 564 446. investable assets *Suitable for those with a minimum of £200,000 of
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lumin news Issue 8 / Summer 2023

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