I always like April, and not just because it normally marks the onset of spring, longer days and allows me to self-indulge with a wild birthday celebration – prosecco, nibbles and all that.
I also like April because it marks the start of a new tax year; when new allowances kick in (thank you chancellor Philip Hammond) and savings and investment habits can be refreshed or revived, and when the crucial message about the need to invest for the long term can be reinforced.
Certainly, I am more of a ‘start’ than an ‘end of’ tax year kind of person – even though as a journalist I have often had to oversee special reports on individual savings accounts (Isas) in the run up to 5 April. Use it or lose it and all that.
I would much rather encourage people to invest early in the tax year – or throughout the tax year – rather than wait for close to the end of the tax year and then wave a red flag imploring readers to squirrel money away.
This new tax year will see adults start with fresh Isa allowances – a generous £20,000. Nothing different there, I hear you say. But this is probably an allowance more important than ever given the government’s decision to take a knife to the tax-free dividend allowance, reducing it from £5,000 to £2,000.
Isa to offset cuts
For some investors with portfolios outside the Isa and pensions regimes, they will be hit for the first time with tax on a slice of their dividends – ranging from 7.5 per cent, 32.5 per cent through to 38.1 per cent dependent on whether they are a basic, higher or additional rate taxpayer.
I am sure there will be a few clients out there (of course I mean yours, not mine) who will benefit as a result from a little bit of ‘bed and Isa’ – selling shares and then buying them back inside the Isa, thereby sheltering future dividends from any tax.
While the £20,000 Isa limit has not changed from last year’s allowance, the Junior Isa allowance ticks up from £4,128 to £4,260. A super – and much under-rated – way to build a fund that will help children meet the numerous financial challenges ahead of them in early adulthood. Be it the cost of going on to further education, the burden of a student loan overhanging them or accumulating a home deposit to put down on a matchbox.
For 16 and 17-year-olds, I love the fact that they can in effect double up on their Isa allowances – by boosting a £4,260 Jisa contribution with £20,000 into a cash-based Isa. I am sure there are plenty of parents out there waiting to oblige – or happy to be nudged by their ever attentive financial adviser.
On the pensions front, there is another £40,000 annual allowance to use and aslightly higher lifetime allowance to aspire to – £1,030,000 instead of £1m. Smart parents should also be looking to set up embryonic pension funds for children. After all, a £2,880 contribution will be topped up with tax relief, resulting in an overall (maximum) contribution this tax year of £3,600.