If you haven’t used your ISA allowance for the 2023/24 tax year, it could be wise to review your options over the next few weeks before the 2024/25 tax year starts. Read on to discover some of the reasons why an ISA could make sense for you. 

Government statistics show that ISAs are a popular way to save and invest. Indeed, the latest data shows 11.8 million adult ISAs benefited from a deposit during the 2021/22 tax year (slightly down from 12.2 million in 2020/21). Collectively, ISA holders added around £66.9 billion to their accounts throughout the year. 

The media often dubs February and March “ISA season” as savers and investors are encouraged to deposit money into their ISAs before a new tax year starts on 6 April. Some ISA providers might also offer more attractive terms during this time, such as a higher interest rate, to entice potential customers. 

In the 2023/24 tax year, you can add up to £20,000 to an ISA. If you haven’t already used this allowance, here are four excellent reasons you might want to do so. 

1. A Cash ISA could be a tax-efficient way to save 

One of the reasons Cash ISAs make up an important part of many financial plans is that they’re tax-efficient – the interest paid on savings held in a Cash ISA is not liable for Income Tax. 

Many savers have welcomed rising interest rates over the last year, in respect of savings accounts. Yet, it could also mean you face an unexpected tax bill. 

According to the Telegraph, 2.7 million savers will pay tax on their savings in 2023/24 as a result of frozen thresholds and higher interest rates. The findings suggest that almost 1 million additional savers could face a tax bill on their savings when compared to just a year earlier. 

Around 1.4 million basic-rate taxpayers are expected to pay tax on their savings this year, a figure that has quadrupled in the last four years. 

According to MoneySavingExpert, if the interest your savings earn exceeds the Personal Savings Allowance (PSA), you might be liable for tax on the portion above the threshold. Your annual PSA depends on the rate of Income Tax you pay:

• Basic-rate taxpayers: £1,000
• Higher-rate taxpayers: £500
• Additional-rate taxpayers: £0

As additional-rate taxpayers don’t benefit from a PSA, an ISA could be a useful way to manage your tax bill. 

Even if you’re not an additional-rate taxpayer, the amount you can hold in your savings account before you could face a tax bill might be lower than you expect.

If your savings account had an interest rate of 5.22%, assuming the account balance was constant, you might need to pay tax if your savings exceed:

• £19,158 if you are a basic-rate taxpayer
• £17,242 if you are a higher-rate taxpayer.

So, placing your savings into a Cash ISA could reduce your potential tax liability. 

2. A Stocks and Shares ISA could help you invest efficiently 

Similarly, Stocks and Shares ISAs could also be tax-efficient if you want to invest. The returns your investments deliver when they’re held in a Stocks and Shares ISA are free from Capital Gains Tax (CGT).

Investments held outside of a Stocks and Shares ISA could be liable for CGT if they exceed the Annual Exempt Amount, which is £6,000 in the 2023/24 tax year for individuals. You should note the Annual Exempt Amount will halve to £3,000 for the 2024/25 tax year. 

The rate of CGT you pay depends on which tax band the gains fall into when added to your other income. In 2023/24:

• Higher- or additional-rate taxpayers have a CGT rate of 20% (28% for residential property)
• Basic-rate taxpayers may benefit from a lower CGT rate of 10% (18% for residential property) if the gains fall within the basic-rate Income Tax band.

According to the Financial Times, the latest HMRC figures show that a record £16.7 billion was collected through CGT in 2021/22. As the Annual Exempt Amount has fallen since then and will be cut again in 2024/25, it’s likely the amount collected through CGT will rise further. 

As a result, if you’re investing, doing so through a Stocks and Shares ISA could be efficient from a tax perspective. 

3. You’ll lose your ISA allowance if you don’t use it before the start of a new tax year  

An ISA could reduce your potential tax liability whether you want to save or invest. So, why should you review your ISA over the coming weeks? Simply, the allowance will reset when a new tax year starts.

If you don’t use the current tax year’s allowance before 6 April 2024, you’ll lose it, which could mean you overlook an opportunity to reduce your tax bill.

4. You could receive a government bonus with a Lifetime ISA

For some people, a Lifetime ISA (LISA) could prove a valuable way to save or invest as this differs to the usual ISA structure, as it benefits from a government bonus. 

You must be aged between 18 and 39 to open a LISA, although you can continue to contribute to a LISA until you’re 50. You can deposit a maximum of £4,000 each tax year into a LISA, and can choose between a Cash LISA and a Stocks and Shares LISA. 

Where a LISA is different to traditional ISAs is that deposits benefit from a 25% government bonus. So, if you deposit the annual maximum of £4,000 into a LISA, you’d receive £1,000 as a bonus. 

However, if you take money out of a LISA before you’re 60 for a purpose other than buying your first home, you’ll be charged 25% of the amount withdrawn. This means you’d lose the bonus and a portion of your own deposit, equivalent to a loss of just over 6%. 

Get in touch to talk about your ISA and long-term plans

If you have any questions about how to use the ISA annual allowance to support your financial plan, we’re here to help. Please contact us to arrange a meeting. 

Please note: This blog is for general information only and does not constitute advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. 

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

Past performance is not a reliable indicator of future performance. 

The pension Annual Allowance increased significantly in the 2023/24 tax year. If you haven’t already reviewed whether the changes could mean you can tax-efficiently add more to your pension, doing so before the current tax year ends on 5 April 2024 might be beneficial. 

The Annual Allowance is up to £60,000 in 2023/24

The Annual Allowance is the amount you can add to your pension each tax year while retaining tax relief. However, you can only claim tax relief on up to 100% of your relevant annual earnings. 

For the 2023/24 tax year, your Annual Allowance could be up to £60,000, this compares to a maximum allowance of £40,000 in 2022/23. So, if you haven’t assessed your pension contributions for the current tax year, you might want to contribute a lump sum to your pension before 5 April 2024.

Two circumstances might mean your Annual Allowance is lower than £60,000.

1. If you’ve already taken an income from your pension, you may be affected by the Money Purchase Annual Allowance (MPAA), which is £10,000 in 2023/24. In 2022/23, it was just £4,000. 
2. The Annual Allowance of high earners may be tapered. If your adjusted annual income, which includes pension contributions, is more than £260,000 your Annual Allowance will fall by £1 for every £2 it exceeds this threshold. The Annual Allowance can be reduced by a maximum of £50,000 in 2023/24. So, if your adjusted income is £360,000 or more, your Annual Allowance would be £10,000. Again, this has increased from £4,000 when compared to 2022/23.

So, even if you’re not entitled to the full Annual Allowance, the amount you could tax-efficiently add to your pension may have increased this tax year.  

As a result, there might be an opportunity to save more tax-efficiently for your retirement. 

You can carry forward your unused Annual Allowance for up to three tax years. Hence, it may be useful to review your past pension contributions too – you have until 5 April 2024 to use your Annual Allowance from the 2020/21 tax year. 

4 financially-savvy reasons you might want to boost your pension contributions 

1. Pension contributions benefit from tax relief 

Pensions are often tax-efficient because your contributions may benefit from tax relief. As a result, some of the money you would have paid in tax is added to your pension. 

Tax relief is given at the highest rate of Income Tax you pay. So, if you boosted your pension by £100, you’d receive an extra £25 if you’re a basic-rate taxpayer. Tax relief can be even more valuable if you’re a higher- or additional-rate taxpayer. 

In most cases, your pension provider will claim tax relief at the basic-rate on your behalf. If you’re a higher- or additional-rate taxpayer, you’ll usually need to complete a self-assessment tax form to claim the full amount you’re entitled to.

2. Your employer may match increased pension contributions 

If you’re employed, your employer will usually have to contribute to your pension on your behalf. The minimum employer contribution level is 3% of your pensionable earnings.

However, some employers will increase how much they contribute if you do. If your employer offers this as a perk, even a small increase in how much you’re adding to your pension each month could potentially give you more flexibility in retirement. 

3. Returns on investments held in a pension aren’t liable for Capital Gains Tax

Returns from investments that aren’t held in a tax-efficient wrapper, like a pension, may be liable for Capital Gains Tax (CGT) if they exceed the annual exemption, which is £6,000 in 2023/24 and falling to £3,000 in 2024/25. 

If you’re investing for your retirement, doing so through a pension could make financial sense from a tax perspective.

You should keep in mind that once you start taking an income from your pension, withdrawals may be liable for Income Tax.

4. Long-term investments may benefit from the effects of compounding 

As you typically can’t withdraw money from a pension until you reach 55, rising to 57 in 2028, your investments may benefit from the effects of compounding.

The returns your pension investments earn will go on to be invested themselves and, hopefully, deliver further returns. Over a long time frame, this can help your savings start to grow at a faster pace.

As you could be saving into your pension for decades, compounding could lead to the value of regular contributions and one-off lump sums growing significantly. 

Contact us to talk about your pension and retirement plans 

If you’d like to understand if you’re on track for retirement or if increasing pension contributions is right for you, please get in touch. We’ll work with you to create a bespoke retirement plan that aligns with your long-term goals and current financial situation. Please contact us to arrange a meeting. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The levels and bases of taxation, and reliefs from taxation, are subject to change and their value depends on the individual circumstances of the investor.

As inflation remains stubborn, and interest rates may have to remain higher for longer, recessionary concerns have grown around the world.

Read on to discover some of the factors that may have affected your investment portfolio in October 2023. 

When reviewing short-term market movements, remember to focus on your long-term investment goals.

UK

After a slump in July, official data shows the UK economy grew by 0.2% in August with the Office for National Statistics (ONS) reporting that the service sector mostly drove this growth.

Despite this positive news, concerns remain that the UK is heading into recession. Official figures indicated that the unemployment rate rose to 4.2% between June and August, up from 4% in the March to May quarter.

In addition, UK business activity shrank for the third consecutive month in October. The S&P Global/Cips Flash UK composite purchasing managers’ output index marginally increased to 48.6 in October from 48.5 the previous month.

However, the reading remained below the 50 mark, indicating that a majority of businesses continued to report a contraction in their output.

Inflation remains stubborn, as the headline rate was unchanged at 6.7% in the year to September. Rising fuel costs offset the first monthly fall in food prices for two years to maintain pressure on households.

This means that interest rates may have to remain higher for longer, especially considering that Swati Dhingra, one of the Bank of England’s nine-strong Monetary Policy Committee, said that they felt most of the impact of 14 interest rate rises was yet to be felt.

While the FTSE All-Share Index rose by 1.9% in the third quarter of 2023, the market remains uncertain, and it had given up all of these gains by mid-October.

Europe

Fears of a recession also persist in the eurozone.

S&P Global said that eurozone business activity declined for the fifth consecutive month and, excluding the months affected by pandemic lockdowns, it was the heaviest fall for a decade.

Falling exports, a sharp drop in new business orders, and a surge in fuel prices all contributed to this decline.

In more positive news, annual inflation in the eurozone fell to 4.3% in the year to September – its lowest level since October 2021. This comes after the European Central Bank decided to increase interest rates to a record level in September, pegging its key rate at 4%.

This data masks sharp differences in inflation between nations. Spain and Italy both saw the inflation rate rise in September – to 3.2% and 5.7% respectively – while Croatia’s inflation rate of 7.3% was the eurozone’s highest. 

Contrast this with inflation in the Netherlands, which fell into the negative zone at -0.3%, meaning prices were lower than they were a year previously.

Overall, the MSCI Europe ex-UK index – an index covering 344 constituents in 14 developed markets across Europe – rose by 10% in the first nine months of 2023.

US

Over the last two decades, the US economy has grown at roughly double the pace of Europe and the UK. This looks set to continue in 2024.

The IMF has predicted that the US economy will power ahead in 2024, forecasting an expansion of 1.5% next year. This compares with IMF forecasts of 1.2% for the eurozone and 0.6% for the UK.

While this is partly due to soaring costs of energy in Europe after Russia’s invasion of Ukraine, more structural reasons – like the US’s booming technology sector – have also helped to maintain growth.

The percentage of US adults in their prime working years participating in the labour force is now at its highest level in 20 years and, interestingly, labour force participation by Americans with a disability has soared.

As in the UK, US inflation remained steady over the 12 months to September, at 3.7%.

Overall, the S&P 500 index rose by around 4% in the six months to 24 October, while the Dow fell by around 1% over the same period. 

Asia

Diversifying your portfolio means investing in a range of different funds, companies, and geographical locations. Gains in one particular sector or world market can help to offset losses elsewhere.

Q3 of 2023 illustrates this well.

In the three months to the end of September, leading indices in the US, Europe, and “emerging markets” all fell in value. So, if you’d invested in just the US or Europe, you’d likely have seen a slight reduction in the overall value of your portfolio.

During the same period, the Japan TOPIX index rose by 2.5%. In the first nine months of 2023, the TOPIX index rose by 25.7%.

Diversifying your assets across regions means you can benefit from strong growth in certain parts of the world, even if other markets are uncertain.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Aspiring homeowners who used the Help-to-Buy equity loan scheme to get on the property ladder could face an unexpected rise in their interest payments due to inflation.

According to the government, the Help-to-Buy scheme helped more than 375,000 aspiring homeowners turn their dreams into a reality between 2013 and 2022, the majority of which were first-time buyers. In total, £23.7 billion was lent through the scheme, which funded £105.4 billion of property purchases. 

Under the scheme, buyers could borrow up to 20% of the property’s purchase price (40% in London) through an equity loan. This meant they needed just a 5% deposit and could potentially take out a smaller mortgage or buy a more expensive home. 

The equity loan was interest-free for the first five years and fixed at 1.75% in the sixth year. However, after six years, the interest rate is linked to inflation. When homeowners initially took out the Help-to-Buy loan, inflation was lower, so interest payments could be much higher than previously calculated.  

Inflation has been significantly above the Bank of England target since 2022

The Bank of England (BoE) has an inflation target of 2% a year. However, the rising cost of living has pushed inflation significantly above this target since the end of 2022 thanks to the long-term effects of the Covid-19 pandemic and the war in Ukraine. 

In fact, inflation reached a 40-year high in October 2022 when it was above 11%. 

The rate of inflation has fallen from the peak but as of September 2023, it’s still above the target at 6.7%. The BoE doesn’t expect to reach its 2% target until the first half of 2025. 

So, as the interest you pay on your Help-to-Buy equity loan is connected to inflation, your interest payment might be higher than you anticipated. 

After the first six years have passed, the interest rate increases every year in April, either by adding the:

• Consumer Prices Index (CPI) plus 2% if you used the scheme between 2022 and 2023
• Retail Prices Index (RPI) plus 1% if you used the scheme between 2013 and 2021.

It’s worth noting that the amount you owe through an equity loan has likely increased too.

When you sell your home or the mortgage is paid off, you have to repay the same percentage as the initial equity loan. So, if the value of your home has increased, so will the amount you owe. 

Let’s say you used a 20% equity loan to purchase a £100,000 property. If the value of the property increased by £30,000, your loan would rise from £20,000 to £26,000. 

At a time when household budgets are already under pressure, an increase in Help-to-Buy interest payments could mean some families struggle to meet their outgoings. 

Help-to-Buy users could face a double whammy of rising costs

In addition to rising interest payments for Help-to-Buy loans, homeowners are also likely to face increased mortgage repayments.

Inflation is having a direct effect on the mortgage market. Homeowners with a variable-rate mortgage have likely faced repayments rising several times over the last 18 months, while fixed-rate mortgage holders may have seen a sharp rise in their repayments when their deal came to an end. 

At the start of the year, the Office for National Statistics estimated that more than 1.4 million UK households would see their fixed-rate mortgage deal end in 2023. More than half benefited from an interest rate below 2%.

With average interest rates closer to 6% as of October 2023, household expenses may be much higher than they were just a year ago. 

For families who use the Help-to-Buy scheme, it could mean two property-related expenses have increased thanks to high inflation. 

3 practical options that could help you cut household bills

If rising payments are affecting your budget, here are three options that could help you.

1. Repay some of your Help-to-Buy equity loan: If you have the money to pay off a lump sum of your Help-to-Buy equity loan you could reduce the amount of interest charged. However, you can only pay half or the full amount of the equity loan – you cannot make smaller repayments. You’d also need to pay for your property to be valued. 
2. Sell your property and move: If you’re thinking about moving home, you might benefit if your property’s value has increased. While some of the profits would be added to your loan, you can use the rest to place a larger deposit on a new property and cut out the need to make Help-to-Buy interest payments. 
3. Review your current mortgage deal: If your mortgage has increased, reviewing other options on the market could be useful. A mortgage broker could help you assess your needs and may be able to secure you a lower rate of interest than if you applied alone. 

We could help you search the mortgage market

If your current mortgage deal is coming to an end or you’d like to compare deals, please contact us. We could help you search the market for the right mortgage for you and may be able to help you secure a more competitive interest rate. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.