However well intended, New Year resolutions can be a waste of time. There are the clichés such as joining the gym, quitting smoking and cutting down on alcohol consumption. Yet by the end of January, personal goals aimed at improving your lifestyle have often been hurled out of the window. Your gym kit along with your membership card remain packed in the bag in the closet, forever and a day.
The start of the year is also seen as the ideal time to reflect on and review your personal finances. This year it is particularly important given the economic environment and rule changes announced by the Coalition in 2010. Ignoring your finances at this juncture could prove to be opportunities lost.
Last year saw changes in pensions legislation that will be introduced in April that could affect you. For starters, the Government has announced that from next 6 April the annual pension contribution limit will be reduced from £255,000 a year to just £50,000 – which is a hefty cut.
However, it is not all bad news. The new rules allow for three years’ unused allowance to be carried forward, which means in effect, someone who has not used their allowance could plough in £200,000 over any four-year period.
This isn’t the only change that is to be introduced in April. It has been a long time coming, but the Government announced in December that, from April, people will no longer be forced to buy an annuity by the time they reach 75.
Removing the need to purchase an annuity will increase the options that are available to individuals as and when they need to take benefits. For some individuals, the fact that they never need to purchase an annuity will make retirement planning more attractive.
What is clear is that with all these changes, the need to take advice is so important.
Besides the latest changes to pensions, it makes good sense to review your investment portfolio to ensure that it is on track to deliver its aims. As the tax belt tightens, making full use of the tax savings provided by your £10,200 annual Individual Savings Account (ISA) allowance becomes even more important. Clearly, the Government thinks so too. The annual allowance will be inflation-linked in future and will increase to £10,680 next tax year. This valuable tax-saving opportunity should be a fundamental building block towards financial security, yet it appears many have still not recognised this. At £3.7bn, year to date net ISA sales are at their highest level since 2001, according to the Investment Management Association in December 2010. However, as research by Fidelity from October 2010 revealed, although there are 44 million adults in the UK, just 14 million ISAs are receiving subscriptions.
Remember if you don’t use your ISA tax allowance, you will lose it. It is also worth bearing in mind that the favourable tax treatment given to ISAs may not be maintained in the future as they are subject to changes in legislation.
Other tax-efficient alternatives that higher earners might want to ponder include Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS). While they carry a higher risk for investors, VCTs give 30 per cent income tax relief on investment up to £200,000 with gains free of capital gains tax (the rate if CGT was raised to 28 per cent from 18 per cent last year) after five years.
On the other hand, EIS investments offer 20 per cent income tax relief on investment up to £500,000 with gains free from capital gains tax (CGT) if held for more than three years and inheritance tax relief on underlying investments held for two years.
The past 12 months have been an extraordinary year with the Coalition flexing its muscle as it bids to bring Britain back from the brink. They have introduced new measures that will not only affect the wider economy, but ones that will also impact individuals – 2011 is not a time to rest on your laurels.
Partner of St. James’s Place Partnership
To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, produced by St. James’s Place Wealth Management, contact Carl Evans on 01993 779056, by email firstname.lastname@example.org or visit www.carlevans-sjp.co.uk