Is it time to get your finances in order?

In this week's episode of the podcast, we're talking to Andy Lewis, a financial advisor from John Scott Davidson Limited about how to prepare for the for the tax year end and the ways to be tax efficient.

Throughout our chat we discuss when to start a pension, how to save for your first home with a Lifetime ISA and ways to help your children start savings.

Watch the episode here↓

Listen to the episode on Spotify or Apple Podcasts or watch the episode on YouTube

Key Insights

How can we prepare for tax year end?

To prepare for the tax year end, it's crucial to take advantage of various allowances and opportunities available. Here's a breakdown based on the podcast transcript:

Utilise Savings and Investments Allowances:

  • Take advantage of tax-efficient accounts like ISAs (Individual Savings Accounts).
  • Remember that the ISA allowance of £20,000 per tax year is a "use it or lose it" allowance, meaning any unused portion doesn't roll over to the next year.
  • Consider capital gains tax allowances and inheritance tax (IHT) allowances, some of which can be rolled over.

Consider Business Owner Tax Implications:

  • Business owners should be mindful of managing their corporation tax liabilities and the dividends they take out each year.

Maximize Pension Contributions:

• Contribute to pensions, as everyone has an annual allowance (£60,000 or 100% of income) that can be used to reduce tax liabilities.
• Check with pension providers to track contributions and ensure maximum utilization of allowances.
• Efficiently access pension funds to minimize tax exposure.

Review Personal Protection:

• Regularly assess and adjust personal protection measures to ensure family financial security in case of emergencies.
Avoid Last-Minute Rush:
• Start early and don't leave tax planning to the last minute to avoid missing out on opportunities and allowances.

Seek Professional Advice:

• Consider consulting a financial advisor to explore specific areas further and ensure comprehensive tax planning.
• By taking proactive steps in these areas, individuals can effectively prepare for the tax year end and optimize their financial situation while minimizing tax liabilities.

What is a Lifetime ISA?

A Lifetime ISA (LISA) is a type of savings account introduced by the government in 2017 with the aim of assisting individuals in purchasing their first homes. Here's how it works:

Eligibility and Contribution Limits:

  • You can open a Lifetime ISA between the ages of 18 and 39 and contribute to it until you reach the age of 50.
  • The maximum annual contribution limit for a Lifetime ISA is £4,000, which counts towards your overall ISA allowance of £20,000 per tax year.

Government Bonus:

  • The government provides a 25% bonus on contributions made to a Lifetime ISA. For example, if you contribute £4,000, the government will add £1,000 to your account, resulting in a total of £5,000.

Purpose and Withdrawal Rules:

  • The primary purpose of a Lifetime ISA is to assist with the purchase of a first home. However, if the funds are not used for this purpose, they can be accessed penalty-free at the age of 60.
  • Withdrawals made for reasons other than buying a first home or reaching age 60 may incur a 25% withdrawal penalty, except in cases of terminal illness with a life expectancy of fewer than 12 months.

Property Purchase and Mortgage Requirements:

  • To qualify for the government bonus for purchasing a first home, the property must cost £450,000 or less.
  • You must use a conveyancer to handle the purchase, and a mortgage is typically required alongside the Lifetime ISA.

Replacement for Help to Buy ISAs:

  • Lifetime ISAs effectively replaced Help to Buy ISAs, offering similar benefits with some differences, such as the cap on property price and withdrawal penalties.

Consideration for Retirement Planning:

  • Even if you've already purchased your first home, a Lifetime ISA can still be a valuable retirement planning tool, especially for individuals within the eligible age bracket.

In conclusion, a Lifetime ISA provides a valuable opportunity to save for a first home or for retirement, with the added incentive of a government bonus. However, individuals should carefully consider the eligibility criteria, withdrawal rules, and suitability based on their financial circumstances.

What is a Junior ISA?

Are you a parent looking to secure your child's financial future? Discover the power of Junior ISAs (Individual Savings Accounts) and how they can be a valuable tool in your financial planning arsenal. Here's what you need to know:

1. Eligibility and Contribution Limits:

Junior ISAs can be opened for children under the age of 18 by a parent or guardian.
Parents can contribute up to £9,000 annually into a Junior ISA, providing a tax-efficient savings opportunity for their children's future.

2. Control and Access:

While parents have control over the Junior ISA until the child turns 16, at that age, the child gains some influence over how the funds are invested.
The child gains full control of the Junior ISA at age 18, allowing them to decide how to use the funds.

3. Purpose and Benefits:

Junior ISAs are designed for long-term saving and investment, offering the potential for substantial growth over time.
Parents can use Junior ISAs to save for various purposes, including funding higher education expenses or helping with a first home purchase.

4. Compound Growth and Time in the Market:

By starting early with a Junior ISA, parents can take advantage of compound growth, where interest on the growth continues to accumulate over time.
The long-term nature of Junior ISAs allows for a higher tolerance for risk, potentially leading to greater returns over the years.

5. Education and Financial Responsibility:

Junior ISAs provide an excellent opportunity for parents to educate their children about the value of money and long-term financial planning.
Encouraging financial responsibility from a young age can set children up for a secure financial future.

6. Long-Term Planning:

Investing in a Junior ISA is a long-term commitment, with the potential to benefit not only the child but future generations as well.
By starting early and making regular contributions, parents can create a substantial nest egg for their children's future endeavors.
In summary, Junior ISAs offer parents a powerful tool to support their children's financial journey from an early age. By understanding the eligibility criteria, contribution limits, and long-term benefits, parents can make informed decisions to secure their children's financial future.

When should you start a pension?

Starting a pension early is crucial for securing your financial future. Pensions offer tax relief, with the government contributing to your savings. For basic rate taxpayers, every £80 invested receives an additional £20, effectively making it £100. Starting early maximizes the benefits of compound growth, allowing even grandparents to set up pensions for newborn grandchildren. When entering the workforce, understanding pension contributions from employers is vital, as many offer defined contribution schemes where both parties contribute. While retirement may seem distant, starting a pension early ensures future financial security.

Accessing pension funds has become more flexible, with options like tax-free lump sums or tax-efficient withdrawals. Currently, personal pensions can be accessed from age 55, increasing to 57 in 2028. Planning retirement goals accordingly is essential. Pensions also offer benefits beyond retirement, as they can be separate from your estate for inheritance tax purposes, making them efficient for passing on wealth.

In summary, starting a pension early secures retirement, offers tax benefits, and provides flexibility in financial planning. It's a crucial step towards ensuring a financially stable future.