New tax year – Get ahead with your financial planning

Whilst we are only just into the new tax year, it is a good opportunity to consider some planning areas to maximise the reliefs and allowances available to you.

Indeed, with the recent changes to the timing for budgets and autumn statements, many are looking to consider their planning earlier in the tax year. Here are our top areas to review now:

Pension Contributions

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The reductions start for those with “adjusted” income over £150,000, so those who leave it too late in the tax year to consider how best to structure their remuneration strategy, could see their ability to contribute reduce significantly or may have to deal with the prospect of an excess contribution.

Action: Consider income planning and subsequent pension contribution strategy as soon as possible.

Pension Lifetime Allowance Planning

The current level of £1m is the most recent reduction and for those who were affected by the change, HMRC have once again provided a lifetime allowance protection that can be claimed, known as Fixed Protection 2016 (FP16). FP16 maintains the allowance at up to the previously higher SLA of £1.25m, however certain restrictions do apply.

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Those with pension benefits through final salary pension schemes should also take note. It is often forgotten that the capitalised value, for SLA purposes, of such benefits is calculated at 20x the gross income payable in retirement. So, for example, someone with a pension payable, now or in the future, of say £25,000 pa gross would see their capital value for calculation purposes set at £500,000. Add this to any other pension benefits and the limit could be closer than imagined.

Action: Consider the implications of the changes and whether now or in the future, with investment growth, the value of pension funds could get close to the SLA limit.

Changes to the Taxation of Dividends

In the 2016/17 tax year we saw significant changes to the way dividends are taxed meaning for those who have not considered the implications fully and potentially adjusted their planning, an increase in tax was on the way.

Action: Whilst it may not be possible to adjust dividend payments, a strategy review for the future could ensure that the remuneration planning is as tax efficient as possible, under this regime. With ISA contributions and capital gains tax exemptions on the list to consider as well, it is important to take the time to review your overall planning early in the tax year, to maximise the opportunities.