The Chancellor (Of The Exchequer, not Financial Management!) is due to deliver his 2021 Budget on the 3rd of March.
According to the Government this “will set out the next phase of the plan to tackle the virus and protect jobs”.
It is no secret that dealing with the pandemic so far has cost the country an eye watering amount of money, and rightly so – but the fact is that we are going to have to pay for it somehow.
The media has reported several possibilities – which can possibly be summarised as a “tax raid”. Two main topics which have been mentioned, have been some restriction in the rate of tax relief that can be claimed by individuals on their pension contributions – and some change to the rules on Capital Gains Tax.
The idea of a Wealth Tax has also been mooted at various points over the past twelve months. Anyone with even relatively substantial assets who values a good nights sleep should probably avoid reading the comments from Sir Gus O’Donnell or looking at the website of The Wealth Tax Commission.
The end of the current tax year is looming large and will be with us on 5th April. It may be worth anyone who is eligible to pay ISA subscriptions and/or pension contributions to at least consider their options if they have funds available to use in this way.
Paying ISA (or Individual Savings Accounts to give them their full title) subscriptions can often be considered a “no brainer”, to use the modern parlance, as they can appeal to those with widely difference levels of risk tolerance – from a cash basis through to stocks and shares and even “innovative finance” (which covers areas such as peer-to-peer lending). The maximum subscription per eligible individual in the 2020/21 tax year is £20,000. This means that a couple who are married or in a civil partnership could invest up to £80,000 in the next two months (by also paying contributions early in the 2021/22 tax year) to help to shield the returns from the “taxman”. In essence the returns from ISA are tax free under current legislation and on the stocks and shares versions they are not liable to Capital Gains Tax – thus potentially avoiding any dreaded “CGT raid” which may apply to other non-ISA assets.
In Chancellor’s (Financial Management, not Of The Exchequer!) eNews in March last year we said “In advance of the Budget, there were rumours (as there have been for many years now) about alterations to the ability for people to receive higher rate tax relief on pension contributions, but once again, the ability for some clients to receive tax relief of up to 45% on their pension contributions was unchanged”. It probably won’t come as any surprise to our readers that this subject is once again being subject to rumours that “something may happen” in this year’s Budget. The regime for high earners and those already drawing some types of pension have been tightened and toughened in recent years and the rules can be quite complex, so it isn’t feasible to cover them all in this short article, but if you feel that you are in a position to consider paying a larger amount into your pension then it is certainly worth having a conversation with one of our Chartered Financial Planners, Grant Farnell or David Torkington about your options.
“The value of investments can fall as well as rise and is not guaranteed.”