The end of the financial tax year is a significant time in people’s financial planning.
As it draws nearer, with only several weeks to go before April, people need to be aware of all the factors that have affected this year and be prepared for what’s coming.
This blog will help provide you with some key information on the possible factors that could potentially have a significant impact on your investments and pensions going forwards.
One of the most important things to remember is this: the next few weeks will be the last opportunity to make ISA contributions, top up venture capital trusts, and invest money into pensions within the current tax year.
This is crucial as who knows what will happen in the future? With the government having to borrow over £300 billion to help support the British economy, it’s possible that the levels of tax breaks will fall, but the amount of tax that we have to pay is going to increase.
According to a Fiscal Studies industry leader, the Chancellor of the Exchequer has been advised not to hike interest tax rates for the next couple of years to allow the economy to recover, and tax revenue to increase.
The reason for this is the government has borrowed a lot of money to help support individuals and UK businesses, but hasnt been making much from taxes. For example, people who have been made redundant during the pandemic aren't paying income tax and companies who have stopped trading aren't paying corporation tax on their profits either!
So, we don’t quite know how all of this will affect our finances next year. However, until the 5th of April, we are in a situation whereby we do know what the tax breaks and tax levels are.
Knowing the tax breaks for this year means that for individuals who want to make sure that they are maximising their opportunities, February and March tend to be a good time to get advice from an independent financial adviser. They can make sure you are taking the right actions with your finances, and that those actions are performed before the tax year ends.
Because right now, the clock is ticking.
Investing at the start of the tax year
At Applewood Independent Ltd, we like to encourage our clients to invest their ISAs as soon as possible in a new tax year rather than waiting until the end of the year.
By investing in April, at the start of the tax year, you have a full 12 months of the money invested, which can lead to some nice returns.
For example, our clients who invested their ISAs at the beginning of the year (after the 6th of April), bought into the stock market at very low levels and have made a considerable return on their portfolios as the markets recovered.
On the other hand, those clients who didn’t take advantage of that, did not know where to invest, or perhaps were concerned about maturing cash ISAs, all historically had very low interest rates.
So, as we approach the 5th of April, I would say that perhaps now might be a good time to put new contributions into an ISA as these contributions are limited to this tax year-end.
Also, if you do decide to invest at the start of the year, try to do it in advance. Providers need some time to process the applications, and these can take several days. I would recommend getting in any new contributions at least a week before the tax year end – that’s why we are always so busy this time of year!
Opportunities in the new tax year
Another thing to consider as we approach the end of the tax year is that now might be a good time to invest in the UK market. If you look at how the stock market has fared over the last 12 months to date, all of the major markets (Japanese, American, German, Chinese) have recovered all the losses they suffered during the pandemic. This means they may have already made all the gains they are due to make.
However, the UK market is slightly different. Back in January last year, the UK market got to around 7800 points on the FTSE 100, but now, at the time of writing this, it’s still only at 6700. That’s 14% lower than it was at the height in January last year, which means there is a real possibility of future gains.
This idea has been supported by all the fund managers that we’ve talked to recently – they’ve all suggested that the UK is a good place to invest too!
This is because not only does the UK have more to recover, but the uncertainty we faced last year is looking like it might come to an end too. The Brexit deal is done and dusted, and we are also one of the leading countries in the world for getting the COVID-19 vaccinations.
Brexit and COVID-19 are two factors that may have held the UK market back from fully recovering, so, by having them dealt with, we may start to see new opportunities as we progress through the year.
However, that’s not to say that there hadn’t been opportunities in the last 12 months. Last year, some of the smaller companies’ funds we invested into have had terrific returns. The best returns have tended to be in America with the technology companies, due to us all using more technology than ever before. So we’ve had some extremely positive returns last year, even in the economic climate that we’ve had.
But looking forward, we think that the UK is potentially excellent value at the moment, so getting in now with your ISAs, pension contributions or venture capital trust investments might prove to be a very good idea!
I hope this was useful. Feel free to contact me with your thoughts and opinions, and email me directly for any further information at firstname.lastname@example.org.
The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.
The value of an investment can go down as well as up. Past performance is not a guide to future performance.