Following the spring budget, there's plenty to consider as we approach a new financial year, with a raft of new opportunities to weigh up.
SoGlos speaks to Cheltenham's RBC Brewin Dolphin to do a deep dive into some of the best financial planning practices at this crucial time of year.
About the expert - George Taylor, financial planner at RBC Brewin Dolphin
George Taylor joined RBC Brewin Dolphin's Cheltenham office in 2018. He advises private clients on their financial planning needs, specialising in pensions, tax-advantaged investments, protection, estate planning and cash flow modelling.
He holds chartered financial analyst and chartered financial planner qualifications and maximises his clients’ finances by making the most of tax allowances and reliefs.
It’s almost the beginning of the new tax year. What should be on people’s radar right now?
We see many people leaving their tax planning until the very end of the tax year. This is unavoidable in certain instances (for example, those with variable pay may need to calculate how much extra they can put into their pensions) but, in most cases, tax planning is best done earlier in the year.
This is certainly true in the case of ISAs. On Thursday 6 April 2023, ISA allowances are reset and UK adults can subscribe an extra £20,000 per person to cash ISAs, stocks and shares ISAs, or a mix of the two.
Some prefer to do this in one lump sum and you could make a reasonable argument that the earlier you invest, the greater the scope for tax-free growth over the long term. However, my preferred strategy is one of regular investment – adding ‘little and often’, as this instills savings discipline and reduces sensitivity to market timing risk.
What pension planning should people be doing at this time of year?
Pensions are certainly in focus following the changes announced in the spring budget.
Generally speaking, pensions were already the most tax-efficient form of saving and investing. Their lead has been extended further with the following opportunities to consider.
The lifetime allowance has been scrapped entirely and the standard annual allowance has been increased from £40,000 to £60,000.
The adjusted income threshold at which the tapered annual allowance (TAA) applies has been increased from £240,000 to £260,000 and the minimum TAA itself has been restored to £10,000, up from £4,000.
The money purchase annual allowance (for those who have already accessed their pensions flexibly) has been lifted to £10,000 from £4,000.
This means some couples could potentially contribute a combined £160,000 per year across pensions and ISAs, which is extraordinarily tax efficient and arguably quite generous!
As we head into the next tax year, now would be a good time to review your broader plan and ensure you’re making the most of available allowances and reliefs.
What should investors be considering at this key time?
The focus is often on what to invest in, when really it should be where those investments are held. As alluded to above, tax efficiency is crucial and some of the available reliefs on pension contributions, for example, will likely dwarf any underlying investment returns.
However, when it comes to the underlying portfolios themselves, the key to successful investing is to get the basics right.
Be patient – as the old adage goes, ‘it’s about time in the market, not timing the market’. Diversify across different asset classes and geographies.
Rebalance often, providing an automatic ‘buy low, sell high’ mechanism and protect against concentration of risk. Keep costs low and avoid over-trading.
How can people boost their savings?
This can be done in two ways. This first is by making any surplus income and cash work harder through effective investment and tax planning.
The second is boosting surplus income by reviewing expenditure – we can all shave a bit off our regular outgoings, without impeding our lifestyles.
On the topic of investing, there is a general misinterpretation of the risks associated with this. Most view investment volatility as a bad thing, but this is just part of the investment journey and can often present some of the best opportunities for more patient long-term investors. As Warren Buffett once said: 'Only when the tide goes out do you learn who has been swimming naked.'
Arguably, the bigger risk is not making money ‘work hard enough’, which could either hinder future goals so that you're not able to live your best life or, worse still, you could run out of money altogether.
What would you like to stress about April in terms of opportunities?
April is a great time to review your financial planning strategy. For those in ‘accumulation’ (i.e. adding to savings and investments), it’s an opportunity to ensure you’re directing the right amounts into the right pots.
As noted above, pensions and ISAs are the key starting points.
This is where a good financial adviser can really be worth their salt, helping to navigate the complicated stuff, make the most of your wealth and ultimately, do more of the ‘good stuff’.
The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Opinions expressed in this publication are not necessarily the views held throughout RBC Brewin Dolphin Ltd. Forecasts are not a reliable indicator of future performance.