Times are tough, money is tight, and taxes are rising. We’re told the UK’s tax burden is higher than at any time since World War II, on track to hit 37.7% of GDP, according to the Office for Budget Responsibility.
Income tax thresholds were frozen until 2028, trapping large numbers of people in higher rate tax bands through the ‘tax brake’ as their income rises faster than the tax thresholds.
Capital gains tax receipts will skyrocket, as our annual tax-free allowance of capital gains tax will be reduced from £12,570 to £6,000, and then again to £3,000 in 2024.
The double taxation scandal that is the taxation of dividends, something that didn’t even exist a few years ago, will also make more money out of all of us. The tax-free allowance, which was £5,000 when dividend tax was first introduced in 2016, will fall from £2,000 to £1,000, then fall back to £500 from April 2016. 2024.
More than ever, we as investors need to be aware of ourselves if we want to meet our investment goals: wealth accumulation, income generation, a comfortable retirement, or whatever.
So here, in the spirit of that sentiment, are three resolutions for the new fiscal year.
Protect wealth in an ISA, not a brokerage or investment account
I know that I know. Everywhere you look, personal finance commentators are urging us all to maximize our contributions to the ISA, paying out whatever leftover cash we can afford, ideally up to the full £20,000 allowance. You’d be forgiven for imagining that by now everyone knew that and was regularly following through.
But the fact is that not only a significant number of people No They do this, or even try to, but they also happily hold investments in ordinary brokerage accounts, or as non-ISA mutual funds with mutual fund providers.
Because? Inertia, maybe. Laziness. Indifference. Lack of knowledge that Shares and Share ISAs exist? I don’t know.
but if this is you, then decide to do something different. ISAs mean you don’t pay income tax on dividends and you don’t pay capital gains tax on realized gains.
And since the tax-free allowance for capital gains tax is reduced to £3,000 from April 2024, and the tax-free allowance for dividend tax is reduced to £500 thereafter date, both are valuable concessions.
Pensions: tax-free earnings, tax-free dividends — and tax returns
ISAs are not the only mass-market tax shelter, however. So are private pensions like SIPPs, shareholder pensions, etc.
Anyone can take out a SIPP or an interested party and therefore benefit from seeing their earnings and earnings grow protected by pensions free of income tax and capital gains tax.
Better yet, pension contributions, under current tax law, still benefit handsomely from tax refunds at their highest marginal rate. Every year, there is a fear that this valuable benefit will be withdrawn or reduced, but so far it has not happened.
So just because you already have an employer pension, don’t think you can’t also have a SIPP or shareholder pension, an investment, like an ISA, where you make investment decisions and empower your future. Even modest savings will grow over time and lower your tax bill in the meantime.
Bed and ISA, Bed and SIPP
Hopefully, you took advantage of the last few months of the £12,570 annual capital gains tax tax-free relief to crystallize the gains and move the proceeds into tax shelters like ISAs or SIPPs. This year, as I say, the tax-free allowance is £6,000, and next year it will be £3,000.
Most investment platforms offer services like ‘Bed and ISA’, or ‘Bed and SIPP’, where non-ISA investments are liquidated and the profits are moved to tax havens.
£12,570, as the tax-free relief from capital gains tax used to be, allowed some leeway to sell and house, but this year’s £6,000 allowance and next year’s £3,000 allowance are much more. restrictive. You will be forced to transfer more slowly to avoid creating a taxable capital gain. Acting now, this year, makes sense.
The bottom line
Investing is good. You know it; I know that. Through investing, we make our future more secure, creating a hedge against adversity, an income stream and, in the long run, a more comfortable retirement.
Post-pandemic and post-Truss public finances are stretched. The Chancellor had to act, and taxes had to go up. Again: you know it; I know that.
But those same taxes can be detrimental to your wealth, depriving you of earnings and realized income.
So don’t delay – secure your prosperity today.
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