I must be suffering from voter fatigue. In the last two years I have had to vote in a Westminster election, an Independence referendum, a Scottish election and now a European referendum. I assume this is why I am already fed up with the ongoing “debate” and that my vote will, allegedly do everything from start/prevent World War III, allow us to buy odd shaped fruit as well as more powerful vacuum cleaners and hair dryers.
It does concern me that at this relatively early stage both sides have resorted to “Armageddon” electioneering – how much further will they increase the hyperbole as we get nearer the date? The more we hear of impending market collapses depending on how the vote goes the more twitchy markets will get. Remember it is human emotion that moves markets and not rational behaviour. Although in the long term markets are efficient, in the short term they most certainly are not.
Given this, if you are the type of person that likes to keep an eye on the value of your investments or pensions on a regular basis my advice is to have a break from doing so over the summer as checking these regularly could lead to an unnecessary rise in blood pressure. Hopefully the weather will be kind, but if we do get a few bad days you could use the time to ensure you are taking full advantage of the new taxation rules to make your personal finances as efficient as possible. Here are a few pointers to get you going.
Starting with the new dividend rules; everyone in the UK no longer pays tax on the first £5,000 of dividends they receive. For couples who may have previously had shares or dividend paying investments held in the name of whoever paid tax at the lowest rate, they may find that if the dividends produced are in excess of £5,000 it may be better to hold these in joint names to avoid unnecessary tax as basic rate taxpayers who previously would have paid no tax on the dividends will now have to pay 7.5% tax on amounts received in excess of £5,000.
The same applies to any bank accounts; for basic rate taxpayers the first £1,000 of interest is now tax free. Higher rate taxpayers can earn up to £500 with no liability to Income Tax. This is why interest will now be paid without any tax deducted and if you earn more interest than the threshold it is your responsibility to notify HMRC so that your tax coding can be adjusted accordingly. In the longer term the plan is that all banks will notify HMRC of the interest paid on our accounts and once Digital Tax Accounts come into being this should automatically be included but more on that in a future Informing You!
For married couples if one spouse is a non-taxpayer and the other a basic rate payer you should take advantage of being able to transfer 10%, or £1,100, of the non-tax payer’s personal allowance to the basic rate payer. This results in a tax saving of £220 which should be enough to buy a new hoover even if it is underpowered. This can be done online at HMRC’s website www.gov.uk/marriage-allowance/how-it-works
Making full use of the ISA allowance has always been a good idea. The fact that it will increase to £20,000 next tax year and that ISA funds held by married couples can remain tax free even on the death of a spouse means that accumulating as much as possible within this wrapper is a key factor in reducing the amount of tax you pay during your lifetime.
I could fill half a dozen Informing You on pensions but it is such a boring subject no-one would read them. However, the most important matter for the summer relates to anyone with a large pension fund who has not previously applied for protection. Applying for Fixed Protection 2016, which will be possible from the end of July, will allow you to keep the old £1.25m Lifetime Allowance rather than be subject to the new £1m limit. However, to qualify for this no further contributions should have been made to a pension from the start of the current tax year.
For those with pension funds valued (not necessarily the actual cash value) at between £1m and £1.25m at 6 April 2016 with ongoing contributions being made, they can apply for Individual Protection 2016 which will allow them to have a Lifetime Allowance equivalent to their fund value at that date. If in doubt give us a call.
All this talk of pensions is making me sleepy but hopefully there is enough to keep you busy until the vote takes place in a few weeks’ time when I can finally take the duvet covers off my head!