Danny Cox, Chartered Financial Planner, Hargreaves Lansdown;
“A hung parliament leaves many questions unanswered and people will be wondering what this means for their financial planning. However with no overall majority, the government will find it difficult to pass any controversial legislation and so we are unlikely to see any big policy changes, for now at least.
From a financial planning perspective you should always aim your plans for the horizon and taking a longer term view hasn’t changed.
There have been a range of tax changes introduced over the last 12 months which some people are still getting to grips with and the election result provides a good moment to take stock to ensure you have the basics in place - the right tactical measures to help set your longer term strategy on the right path.
Make the most of income tax changes
Increases to both the personal allowance and higher rate tax threshold (except Scotland), the introduction of the dividend allowance and personal savings allowance, all provide greater opportunities for couples to reduce the tax they pay on income, interest and dividends.
The easiest way to do this is to spreading taxable assets between spouses to make the most of these allowances and tax bands and using tax shelters such as ISA.
It is also worth noting that the dividend allowance is due to fall from £5,000 to £2,000 from April 2018.
New ISA allowance
Sheltering cash and investments in ISA means not having to worry about ever paying tax on their returns. ISAs are free of tax and the allowance has increased to £20,000. The increase in the ISA allowance will undoubtedly add to the growing number of ‘ISA millionaires’ in the UK.
The new Lifetime ISA
Launched in April the Lifetime ISA gives those aged between 18 and 40 an additional government bonus incentive toward either a first property or later life, or both. You can save up to £4,000 per year. Contributions and bonus payments can continue until you reach age 50. All the money saved plus the bonus will grow tax-free. It’s pretty well a no-brainer for someone saving for their first home.
Pensions remain the number one choice for retirement saving, especially workplace pensions with employer contributions. Higher rate tax relief remains, reducing the cost of a £10,000 pension contribution to as low as £6,000 and it is important to take advantage of the generosity of this tax break.
The annual allowance is £40,000 unless you have accessed a pension fund flexibly in which case it is £4,000 and is known as the Money Purchase Annual Allowance (MPAA).
Capital gains tax
The capital gains tax (CGT) allowance is £11,300 allowing you to realise profits up to this level before paying CGT, £22,600 for couples.