Scotsman Money: Time to take a new tax year health check

With the start of the new tax year fast approaching, experts are recommending people get their personal finance affairs in order now to ensure their money is being managed as efficiently as possible.

To optimise returns, Tom Munro of McHardy Private Wealth recommends “a robust financial health check” for the new tax year

In just a week, several changes will be introduced that will hugely impact money management, including a cut in National Insurance (NI). And the British Individual Savings Account (ISA) is set to be launched following consultation, although no timeframe on when it will be available has been revealed.

Henrietta Grimston, financial planning director at wealth management firm Evelyn Partners, says: “Even though the Budget was fairly light on headline tax changes, there were some notable measures that come into play on 6 April, like those on National Insurance and Capital Gains Tax [CGT] on property. But there are also important changes that were in the pipeline well before the Budget, like new reductions in the capital gains and dividend allowances.”

And Scotland will be diverging from the UK on Income Tax, with the introduction of 12 different tax rates and 10 tax bands.

Scott Snedden, director and financial planner at Waverton Wealth, says: “A new ‘advanced’ 45 per cent tax band will be introduced by the Scottish Government for those earning between £75,000 and £125,140. According to the Scottish Fiscal Commission that will financially impact 114,000 Scottish workers. And for the almost 50,000 Scots who earn over £125,140, their top marginal income tax rate will rise to 48 per cent from the current 47 per cent.”

On the cut in NI rates in the UK from from 10 per cent to 8 per cent for employees, and from 8 per cent to 6 per cent for the self-employed, Ross Leckridge, chartered financial planner with Aberdein Considine’s wealth management operation in Edinburgh, says this means a little more for millions of workers in their net monthly pay, and a slightly smaller annual tax bill for the self-employed.

He explains: “This could be a boost to disposable income for those struggling with the cost-of-living crisis and higher mortgage rates. Or it could fund slightly higher pension contributions to boost retirement savings for those who can afford to keep their disposable income at the same level.”

Leckridge adds that other things to look out for include the earnings threshold for Child Benefit increasing from £50,000 to £60,000. He says that as it tapers at half the rate, this benefit is now not lost entirely until earnings reach £80,000, instead of £60,000 as before.

The pension Lifetime Allowance is being abolished and replaced with three new ones – the Lump Sum Allowance, Lump Sum and Death Benefits Allowance, and Overseas Transfer Allowance.

“The rules are complex and everyone – pension providers and financial planners alike – is still coming to terms with the changes. Advice in this area is as critical as ever,” says Leckridge.

While the British ISA is set to make its debut later this year or next – giving ISA investors an additional £5,000 allowance per annum – the consultation period between HMRC and the financial services industry runs until 6 June, so there won’t be greater clarity for savers until after that date. The new ISA is designed to increase investment in UK companies. allowing individuals to put up to £5,000 in British businesses.

But some have questioned whether it is the correct approach. Steven Cameron, pensions director at Aegon, says: “Given the narrow target market, the British ISA looks like a very niche product. While the Chancellor’s aim of encouraging greater investment in UK companies is understandable for UK economic growth, this needs to be weighed up against what’s in an individual’s best interests. A specific new product may not be the right way of going about it.”

Tom Munro, financial planner with McHardy Private Wealth, says: “As we enter a new tax year, one of my main recommendations is to carry out a robust financial health check. This provides individuals with a clear overview of their savings and investments to help optimise their wealth.”

He recommends an analysis of all aspects of someone’s personal situation, including pensions, ISAs, cash, life insurance, wills and Power of Attorney, mortgages, investment strategy, income and expenditure, tax, and retirement plans.

Munro adds: “I seldom come across people who are maximising all available tax allowances and exemptions, a key area to focus on to ensure long-term prosperity.”

Olawale Adeosun, head of regional wealth planning and family governance at LGT Wealth Management, explains that when the final reduction to the annual CGT allowance and the dividend allowance comes into effect, the amount of tax-free capital gains an individual can realise each year will have reduced from £12,300 in 2022/23 to £3,000. And tax-free dividends an individual is entitled to will be £500.

Mark Prentice, head of private banking (Scotland) at Hampden & Co., says we should consider how wider economic trends and policies impact us.

“The bank rate rises over the last two years have been welcome news for personal savers. Businesses, trusts and charities should also be considering how they are using deposits to generate returns,” he explains.

“With inflation now falling, the expectation is that rates will come down some time in 2025, although this is not certain. Savers should shop around to maximise returns, and be prepared to give up some flexibility by locking in to term deposits.”