Harnessing Your Financial Power – Financial Planning in the New Tax Year

Lucy Young, Financial Planner at Independent Women

As the new tax year began on 6th April, it is important to be aware of the common personal finance allowances that refresh.

Understanding your financial goals and time horizons is crucial. You will rely on a number of allowances at each stage of your financial journey, from saving into ISAs and pensions during your working years to build wealth, to leveraging inheritance tax allowances and gifting strategies in later life for succession planning. During this blog, we look at each of life’s key stages in turn.

Building Wealth

Identifying key expenditures such as house, school fees, and other significant costs is the first step in building wealth. Once you have a grasp of your monthly outgoings, you can then consider saving any surplus income.

ISAs are a tax-efficient way to save and invest your money, offering tax-free interest and returns on your savings and investments. For the 2024/25 tax year, you can add up to £20,000 across all your ISAs. If you have children or grandchildren, Junior ISAs (JISAs) are also a tax-efficient way to save for their future.

Pensions also offer a tax-efficient way to save for the future, as your contributions may benefit from tax relief and any interest or investment growth earned is tax-free.

Considering Retirement

When considering retirement, it's important to have a clear income strategy incorporating each of your sources of income. It is also crucial to have an emergency cash fund that is at an enhanced level so that were there to be a significant drop in the value of your invested assets prior to your retirement, you retain some flexibility.

A tax efficient income strategy from your pension in retirement may mean you consider taking smaller, regular withdrawals to stay within lower tax brackets and utilize tax-free allowances. Understanding the rules around pension charging can help you avoid any unauthorised payments and tax penalties.

Retirement income tends to come from a number of different pots (including your pension), and so it is important to consider that the capital gains tax (CGT) allowance was cut from £12,300 to £6,000 for the 2023/24 tax year, and the annual exemption halved again on 6th April last year to just £3,000. Dividend and savings allowances have also reduced in recent years and so a clearly defined strategy has become increasingly important for the overall longevity of financial plans.

Succession Planning

Later in life, succession planning involves considering inheritance tax (IHT) allowances and gifting.

The nil rate band for IHT is £325,000, meaning that estates valued below this threshold are not subject to IHT. If you give away your home to your children or grandchildren, the threshold can increase to £500,000. Additionally, there are various reliefs such as Business Relief and Agricultural Relief that allow some assets to be passed on free of IHT or with a reduced bill.

Gifting, through the use of your available allowances that refresh annually, can be an effective way to reduce the value of your estate both during your lifetime and on death to potentially lower the IHT liability on your estate.

Stay Informed of Changes

Staying informed about changes in tax rates and allowances is crucial. The new tax year brings several changes, and being aware of these changes can help you make informed decisions and optimize your financial position. Regularly reviewing and updating your plan is essential to ensure that it remains relevant and achievable, as is having the visibility of your long term strategy via cash flow modelling. Remember, the goal of financial planning is to provide you with peace of mind and financial security, and a flexible plan can change and adapt just as life does too.

By considering these key areas and staying informed, you can harness your financial power and achieve your goals for the year ahead.

Independent Women is a trading name of Forvis Mazars Financial Planning Ltd. The information contained in this article does not constitute individual advice. Forvis Mazars Financial Planning Ltd will not accept any responsibility for decisions taken or not taken on the basis of the information presented. Always obtain independent, professional advice relevant to your own circumstances.

Any reference to legislation and tax is based on Forvis Mazars Financial Planning Ltd’s understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.

Forvis Mazars Financial Planning Limited Forvis Mazars Financial Planning Ltd is registered in England and Wales No 3172233 with its registered office at 30 Old Bailey, London EC4M 7AU. Forvis Mazars Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. Forvis Mazars Financial Planning Ltd is a wholly owned subsidiary of Forvis Mazars LLP, the UK firm of Forvis Mazars Global, a leading global professional services network.