Category: ISAs

5 things to do before the 5th

Some tax year tips!

As 5 April approaches, along with the cut off for any potential tax savings to be gained this financial year, now is the time to take a quick look at your finances and make sure you are as tax efficient as possible.

After all, you really don’t want to wake up in a bad mood on the 6th realising you’ve missed some golden opportunities to save money!

So my top five tips are as follows:

1. Make the most of your capital gains tax allowance

Your Capital Gains Tax (CGT) allowance is a simple way to reduce any tax liable on the sale of certain assets, especially at this time of year as we approach the end of tax year.

Everyone has an annual £11,300 CGT allowance. Which means that you can sell assets that are liable to CGT without having to pay any tax on the first £11,300 of gains. There are certain assets that are exempt of any CGT liability (such as your main home, car and ISAS.)

Now is the perfect time of year to consider the way in which you dispose of your assets. As you cannot carry your CGT exemption over to the next year, you can stagger the way in which any tax becomes liable. For example, if you are planning to sell shares and are likely to make £20,000 from the proceeds, then you can take advantage of this time of year and sell them in two batches, either side of the 5 April Tax year end.

Married couples and civil partners should consider asset transfers between each other, in order to minimise their tax liability on future capital gains. As the CGT allowance is an individual one, married couples and civil partners are able to cover up to £22,000 of gains between them once they have shared ownership of joint assets. Just make sure that any transfers are genuine, outright and unconditional with no strings attached.

2. Use your seasonal bonus wisely

Any year-end bonus payment you may receive is an ideal way to top up your pension in order to make sure you are taking full advantage of your allowance. Especially as any allowance not used in a particular tax year is lost forever.

If you are able to make a pension contribution using your bonus sacrifice, then the boost your pension would receive could be worth almost double the net amount you would receive if you took the bonus as cash.

3. Keep your child benefit

Introduced in 2013, many families have been hit by the “high income child benefit charge”. The claw back is at the rate of 1% of the amount of child benefit for every £100 of income over £50,000. Which means that when your adjusted net income hits £60,000, you effectively lose all of the benefit.

Anyone approaching, or earning above £50,000 will start to see a reduction in the child benefit allowance if their bonus takes them over the £50,000 threshold.

So putting any end of year bonuses into your pension could also help avoid crossing that threshold and seeing your child benefit reduced.

4. Gift your way out of an Inheritance Tax Bill

It’s likely that, upon your death, your estate will be subject to Inheritance Tax (IHT). Currently charged at 40% on anything over £325,000.
You can however use your annual exemption to make £3,000 worth of gifts every year, without being liable to IHT.

You can also carry over any leftover annual exemption from one tax year to the next, but the maximum figure is £6,000 per year. You can choose to gift smaller items too, including £250 each to as many individuals as you wish. Wedding and Civil Partnership gifts are also tax exempt up to £5,000 to a child, £2,500 to a grandchild or great grandchild and up to £1,000 for anyone else.

5. Your ISA allowance is there – so use it

There are just a few weeks left to use this year’s ISA allowance, as the amount you are allowed to invest in ISA’s resets on 5 April, with no possible way of you carrying over that tax break into the next financial year. In short – if you don’t use it, you lose it!

So any UK resident aged 18 or over, can invest £15,000 this tax year. You can split this between one Stocks and Shares ISA and one Cash ISA, or you can just invest in one type.

If you are aged 16 and 17 you also have a £15,000 ISA allowance (to be used in a Cash ISA only). And let’s not forget that parents can also put up to £4,000 into a Junior ISA for each of their children under the age of 18. Either way that’s a big tax saving sitting there waiting to be taken advantage of.

As always, if you need some more information, or want to discuss your personal circumstances, please contact us at Bridgewater Financial Services and we’d be delighted to help save you money!

The Great British Tax Grab

– and six ways to prepare against it

First the very good news

Reading this and acting accordingly will save you money in the coming year!

That’s because, in just a few months (April 2018) the tax-free dividend allowance is going to be reduced from £5,000 to £2,000. This will reduce any tax-free sums investors receive in dividends by over half.

Those hit hardest will be any small business owner, who pays themselves via a dividend, as well as investors who are dependent upon income from shares or funds; especially those who are now retired.

However, there are things you can do that might help save you from ‘the grab’.

How will the tax grab work?

From April this year basic rate taxpayers with dividends of £5,000 will have to pay an extra £225, higher rate taxpayers an extra £975 and additional rate taxpayers an extra £1,143 in extra income tax.

The numbers speak for themselves and we would advise clients to start exploring the ways they can mitigate the impact of these changes.

So here are six of the best ways to guard against the grab
• Put investments in joint names
• Make use of exempt wrappers
• Split investments or income to minimise tax
• Rebalance your investments
• Place equity investments within an investment bond
• Review your current position

Joint names

Two names are always better than one when it comes to avoiding any tax grab. By switching investments into your and your spouse’s name you may help prevent paying excess tax.
Take a retired couple with a £100,000 investment in a UK equity income collective fund (held in one name), who receive £4,000 pa income distributions. The April 2018 changes would mean that an additional tax of £150 to £762 would be due (depending upon tax status).

If the fund was switched to joint names, this could help avoid any increase in tax paid, as both spouse’s tax-allowance is now utilised.

Exempt wrappers

Equity investments held via ISAs, Pensions or VCTs are exempt from dividend taxation. Meaning that a couple investing £40,000 in a UK equity income collective investment fund in a stocks and shares ISA this tax year (at a distribution yield of 4%) will receive £1,600 pa tax-free.

That’s a saving of £120 and £610 each year. Plus they can invest into their ISA each year from then on, which further increases the tax saving.

Split investments or incomes between spouses

It doesn’t have to be a 50:50 split, as clients need only hold specific proportions of investment in order to utilise any dividend allowance and take advantage of lower marginal dividend tax rates.
A couple with a jointly held £200,000 of UK shares and collective investment funds would receive £8,000 pa income distributions.
Although they might both have their dividend allowance available from 6 April 2018, if one is a HRT and the other a BRT, then they would be wise to split their investment 25:75 in favour of the BRT. That way the dividend tax on anything over their tax allowance only gets taken at 7.5% and not 32.5%.

That’s a saving of £500 each year – which is a significant 25% tax difference of £2,000.

Get the balance right

Rebalancing your investments between those taxed as interest or dividends can be a clever move. If you currently hold a mix of investments, with some taxed as savings income and some as dividends, then you should review your position to ensure that both your personal savings and dividend allowance are being properly utilised, so that you are achieving the full £6,000 pa for each as tax-free income.

With tax on savings set higher than dividends, you may wish to consider investments in exempt wrappers. Equally with your personal savings allowance at £1,000 pa (BRT) or £500 (HRT) each, means that a corporate bond collective investment fund with a distribution yield of 4% equates to a £50,000 tax-free investment per BRT couple.

Make better use of investment bonds

Tax deferred investment bonds (onshore) may be an advantageous way of holding UK equity investments. Especially if you are an individual who has fully used your dividend and other allowances, or you are a trustee of a discretionary trust who just doesn’t receive them. As dividend income received by onshore investment bond life funds is free from corporation tax.

What that means is the overall tax paid by a UK equity life fund could be significantly lower than the BRT credit given.

For example, a HRT investing in a UK equity fund through an onshore investment bond would have no on-going tax liability and, if they are a BRT on encashment, pay no further tax


As always, whenever the government present a new change in the rules, designed to catch the complacent napping, now is the time to wake-up and take action.

You may have been under the tax-allowance prior to April 2018, or just wish to make sure that you are taking advantage of all the tax breaks available. Whatever your motivation, a review of your individual position can only ever be a good thing.

Now is the time to contact your adviser regarding the changes that are coming. As always, here at Bridgewater Financial Services we are here to help. If you would like one of our dividend taxation experts to look at your tax position, then please get in touch on 0161 637 2191 and arrange a consultation.

REMEMBER – April will be here before you know it!

A New Year and a New Financial You

Happy 2018!

It’s that time of year again, when we all make our New Year’s resolutions. Whilst I can’t help you with getting fit, quitting smoking or learning the piano, I can certainly help with any resolutions you may have made regarding getting your finances in a better order.

Whether you’re planning to spend less, or save more, this blog may help guide you away from the many potholes that throw our best intentions off course.

I’ve broken things down into easily digestible sections. Covering Pensions, ISAs, Investments, Insurance and Wills and LPAs. With some hints and tips to help keep you on track with all of them.

As a rule, I would say that realistic and well-defined objectives work far better than general goals and ambitions. For example, if your goal is to build up a nest egg, then a defined resolution to put £500 into a savings account each month works far better than the general intention to just ‘save more’. It sounds obvious, but you would be surprised how a well-defined objective can achieve a successful outcome.

Another way of gifting yourself a head start in your quest for a ‘new financial you’ would be to examine your existing tax and pension position. Making sure that you are taking full advantage of the available tax relief, as well as ensuring you are getting the most out of investments and any insurance plans you may have. Again, a little effort here at the beginning of the New Year can pay dividends further down the line.

Ponder your Pension

I’ve deliberately started with pensions, as I feel that sometimes we don’t give pensions the attention that they deserve. They are one of the most valuable assets we can have, yet they are often overlooked. As legislation has changed massively in the last few years, if you haven’t reviewed your pension position, then now would be a very opportune moment.

Have a look at where you are with your current scheme and ask yourself:

• Have I got the level of my contributions right? Too little and you could find yourself wanting in retirement and too much could create problems with your Reduced Lifetime Allowance)
• Does my investment strategy still fit with my attitude to risk, time horizon and any changes in my current situation?
• Is my pension scheme able to take advantage of the new pension freedoms, or is it one of the older schemes that can’t benefit?
• Does my pension fit with my retirement and estate planning?
• If my pension is a Final Salary Scheme, then with the increases in transfer values, is it worth requesting a transfer value and restructuring my pension?

Although not an exhaustive list, these are certainly the questions you should know the answers to if you want to make sure that your pension is in the best place it can be.

Investigate an ISA

If you are not taking advantage of ISAs, then I would suggest that it becomes top of your list of things to consider.
You can invest in an ISA up to a limit of £20,000 of which £4,000 can be paid into a LISA (for those eligible). It’s a great way of avoiding tax on your investments and guaranteeing a fixed return.

Please also remember that the annual ISA deadline is 5 April. So you can take advantage of the rest of this years ISA tax-free opportunity before the deadline, then do the same again after. It’s also worth mentioning that some providers take several working days to process new ISAs, so don’t leave it until the beginning of April, or you may miss this year’s deadline.

Examine your Investments

Now is a good time to check that your investment strategy is on course to achieve your goals. Start by looking at the latest report regarding your mutual funds, check to make sure that they match your appetite for risk and that you are happy with where your money is being invested.
When considering your investments, especially your exposure to risk, always include your pension, ISA’s funds and stock together, even when the funds are spread around different accounts and investment products. That way you will get a better feel for your overall portfolio.

Revisit your Insurance

Although good insurance cover is an essential part of strong financial planning, the wrong product can end up costing you a great deal of unnecessary expense.

Now’s the time to review your insurance plans. Check what each plan covers and how much it costs. Any changes in your circumstances since you took the cover out may require a different plan and could even lower your premium.

Look into your Will and LPA

More than half of UK adults, including many in their 50’s and 60’s, don’t currently have a Will in place. If you’re amongst that number, then I would suggest that writing one should be high up your list of financial things to do in 2018.

The same can be said regarding Lasting Power of Attorney (LPA), as incapacity can strike without warning. Getting LPA sorted before it’s too late will save your family and your estate considerable costs and lengthy delays.

Putting a Will and a LPA in place is nowhere near as difficult or costly as many people think. We have contacts with a number of specialist law firms across the UK who can assist you in preparing both.

If you do already have a Will or LPA, then take the time to review it. Checking that it is up to date and that it reflects your current wishes.

We’re here to help the new Financial You

I hope that this blog goes someway to starting the new financial year off on the right foot and helps keep you focused and moving towards your goals for 2018.

If there is something specific you would like to talk to us about regarding your plans, then please get in touch. We’d be delighted to help.

Wishing you all a Happy and Prosperous 2018.

The Chancellor’s Autumn Budget 2017

The Rt Hon Philip Hammond MP

Following a turbulent few months across The Palace of Westminster, with a call for more spending and a more aggressive approach to growing the economy, the Chancellor’s budget was largely seen as a business as usual approach, albeit within the ever-present shadow of Brexit.

So now that Philip Hammond has had his day in Parliament, let’s see what kind of impact it’s going to have on yours.

Well firstly, there were no significant announcements regarding tax or pension changes. Nor was there anything that set the markets alight, or sent them into free-fall. In fact this market apathy was manifested in the non-movement of the FTSE 100, Benchmark 10 year Government bond or guilt and with the pound largely static during the Chancellors hour-long delivery.

What the Budget might mean for you


Your personal income tax allowance is set to rise to £11,850 for the fiscal year 2018-19 throughout the UK apart from Scotland. As Scotland will set its own personal tax threshold, should it choose to, in the Scottish budget due on 14 December.

The higher rate of income tax in the UK will rise to £46,350 for the fiscal year of 2018-19. Again with the exception of Scotland, who may address this in their impending budget.


First time buys will not have to pay Stamp Duty on properties up to a value of £300,000, which would also see those buying properties up to £500,000 paying no stamp duty on the first £300,000. A move that should benefit 95% of first time buyers


The pensions lifetime allowance will rise in line with the consumer price index to £1.03Million. One highlight for pensions is that there will be no changes in the pensions funding limits, with the annual allowance remaining at £40,000 and not tapered until adjusted income exceeds £150,000.


The Junior ISA limit is set to rise to £4,260. Whilst the overall ISA limit will stay at £20,000 of which £4,000 can be paid into a LISA (for those eligible).


There will be a £400 increase in the capital gains tax allowance, seeing the threshold rise to £11,700.


The nil band rate for inheritance tax will remain at £325,000 until April 2021, with the residence nil rate band increasing from £100,000 to £125,000. Which means that, in the future, couples can leave assets up to £900,000 to future generations free of inheritance tax liability.


Although no specific details were announced, there is a planned consultation, to be published in 2018, which will consider the simplification and fairness of trust taxation.


The UK Stock Market was largely indifferent to the Chancellors speech. In fact, when he stood up to speak the FTSE100 was trading at 7,448 and when he sat down an hour later, it was largely unchanged.

The real movement in the market came about through the changes in Stamp Duty. With large house builders witnessing their shares drop between 1% and 3%. Possibly reflecting some disappointment in the detail of the chancellors £44 Billion Housing Package, along with the lack of an extension to the popular Help to Buy scheme, compounded with an investigation into the speed at which permitted land banks see the building of new homes taking place.

In true Stock Market traditions, where the tide goes out for one group, in it comes for another.
With the increase in the Stamp Duty it is widely believed that we will see a reinvigoration of the housing market, as well as the driving up of house prices. All this leads to higher profits for Estate Agents and, as a consequence of that, national chains saw an increase in the value of their share price.


The downgrade in the UK’s GDP growth forecast for the next three to four years, along with the rest of the budget, went through without any real reaction from the currency markets. With Sterling ending the budget in much the same place as it started against the Euro and Dollar.


All in all, the Chancellor delivered a steady budget, without any radical changes to the landscape. As always, if you have any questions regarding a specific area of the budget, or your own personal circumstances, then please don’t hesitate to get in touch, where we will be happy to help you in any way.

Lifetime ISA (LISA)

LISA Lifetime ISA

There’s been a great deal of talk recently about the launch on April 6th this year of the Lifetime ISA (LISA). So, I thought it would be very worth while to provide you with a quick overview of what exactly a LISA is, how they best work and who they work best for.

With property prices increasing and the accompanying problems of getting that all important deposit together for your first home, LISAs are designed to be a vehicle to help overcome this challenge.

Specifically aimed at investors between the ages of 18 and 40, who are saving towards the purchase of their first home. The idea being that savers can put in up to £4,000 a year and receive a bonus of up to £1,000 per year from the Government. So, if you have your LISA between the ages of 18 and 50 that could be as large as £32,000 in bonus payments (based on current bonus payments). Although Mr Osborne stated that the annual bonus would continue to be paid to LISA holders until they reach their 50th birthday, former pensions minister Steve Webb added that the 25% rate could turn out to be a “Teaser LISA” rate that may fall back in the future.

There are also some stipulations that will accompany your LISA. The funds must be used to purchase your first home (wroth up to £450,000). If you don’t use your LISA for the purchase of your
first home, then the funds will be locked away until you are 60 years old.

Just like a standard ISA, you have the choice of holding your investment in cash, or invest it in funds and individual stocks where any growth in your assets will be tax-free. You can use your LISA for the purchase of your first house, or access the funds at 60. However, if you take out any cash before then there is a rather large 5% penalty to pay, as well as losing your government bonus, along with any investment gains you’re made on that bonus!

There has been a great deal of debate as to whether the LISA would make a viable pension vehicle for workers in their 20’s and 30’s, but the fact that a LISA does not attract employer contributions may outweigh its attractive 25% annual bonus.

I suspect the real dilemma, for investors saving for a home, is the choice between the LISA and the Help-to-Buy Isa. Although the latter Help-to-Buy Isa will close to new savers in November 2019 and will only be open to new contributions until 2029. But if you are one of those investors whose timings place you in a position of choice, then there are some important points you should be aware of.

Firstly, the amount you are allowed to invest annually differs. Both products offer a 25% government bonus for those buying a home, but the allowable investment needs considering. A LISA allows you to invest £4,000 annually and will attract a £1,000 top up. A Help-to-Buy Isa allows you to invest £2,400 annually and attracts a bonus of £600. Plus, when you first open a Help-to-Buy Isa, if you can deposit a lump sum of £1,000 that will generate a bonus of £250 (meaning the bonus in the first year could be £850). So, a Help-to-Buy has a bonus cap of £3,000 whereas a LISA pays a bonus of £1,000 every year, so could climb to £32,000.

There are some differences in the value of the property you can buy too. Help-to-Buy allows you to purchase a property up to £250,000 outside London and £450,000 within London. The LISA puts a straight cap of £450,000 wherever you decide to buy in the UK.

So as with all financial products, careful choices have to be made. As the LISA may be ideal for some of us, but that largely depends upon the life stage we are at and what we are planning for in the future.

Tax Year End Planning Checklist

With three weeks left until the tax year end, it’s time to review your finances and check whether there are any actions you can take to make your current and future tax position as efficient as possible. As every year the key date is 5 April, and as always we provide a tax year end planning checklist to guide you through the main optimisation opportunities, which you can find below.

Income Tax and National Insurance

If you have some control over the size and timing of your income, e.g. you are self-employed or own a company, there may be opportunities to optimise your income tax and NI bill, such as delaying an invoice or finding the right combination of salary and dividends.
The main income tax and NI figures for 2016-17 are as follows:

  • £5,824 (£112 per week, same as previous year) = Lower Earnings Limit – minimum to qualify for State Pension and other benefits
  • £8,060 (£155 per week, also unchanged) = Primary Threshold for employee’s NI (12%)
  • £8,112 (£156 per week, also unchanged) = Secondary Threshold for employer’s NI (13.8%)
  • £11,000 = Personal Allowance – basic rate income tax (20%) applies above this amount
  • £32,001 = higher rate income tax (40%) kicks in

All the various rates, thresholds and allowances for this and the next tax year are available on this page on


If you have the option, make sure you use your tax-free dividend allowance, which is £5,000 for both 2016-17 and 2017-18 (it will go down to £2,000 in 2018-19, as Chancellor Philip Hammond revealed in his last week’s Budget speech).

Beyond the allowance, dividends are taxed at 7.5%, 32.5% and 38.1%, respectively, for basic, higher and additional rate taxpayers. The taxable amount includes dividends you receive from your own company, as well as any other investments you directly hold, such as shares or funds. It excludes dividends received within tax wrappers such as your pension or ISAs – powerful tax planning tools which certainly deserve your attention before tax year end.

Pension Contributions

The annual pension contribution allowance remains the same as last year at £40,000 for most taxpayers, but for high earners it is tapered at a rate of £1 for every £2 you earn above £150,000, up to £210,000 (as a result, above £210,000 the pension allowance is fixed at £10,000). HMRC provides official guidance here.

Keep in mind that you can also use any unused allowances from the three previous tax years, as long as your total contributions stay below your earned income for the current year. You should also keep an eye on the Lifetime Allowance (LTA), currently at £1 million.

5 April 2017 also marks the deadline for Individual Protection 2014, which allows you to get a higher personalised LTA as a compensation for the April 2014 LTA reduction (LTA was cut from £1.5m to £1.25 in April 2014 and further to £1m in 2016). We have covered this in detail last month.


Besides pensions, ISAs are some of the most effective ways to save for retirement and the trend in the recent years has been towards higher allowances and more flexible rules. The range of products and investment options available under the ISA scheme has been expanding. You can invest in the traditional cash ISAs, stocks and shares ISAs and the recently introduced innovative finance ISAs.

The annual ISA allowance for 2016-17 is £15,240 (it will go up to £20,000 next year). Unlike in the past, if you have made any withdrawals during the year, it is now allowed to put money back in without reducing your allowance (provider and product specific rules may also apply).
In any case, the deposit must be made by 5 April, otherwise this year’s allowance is lost. Note that some ISA providers can take several working days to process deposits – make sure to send the final deposit at least a week before the tax year end to avoid disappointment.

Capital Gains Tax

Outside an ISA or pension, capital gains tax (CGT) normally applies when you sell an investment at a profit, with the rates being 18% and 28%, respectively, for basic and higher rate taxpayers. There is an annual CGT allowance, making the first £11,100 of capital gains tax-free. Like the dividend allowance or the ISA allowance, it is use it or lose it, and can’t be transferred to following years.

If you are holding investments with unrealised capital gains, you may want to sell and reinvest part of them in order to use the CGT allowance and reduce the tax bill in future years. You can also reinvest the proceeds in an ISA (a “Bed and ISA” transaction), which effectively earns your investments a tax-free status going forward. Of course, transaction costs apply and may outweigh the tax benefit. Taxes are only one of the many things to consider when deciding your investment strategy and actions.

Inheritance Tax and Gifts

If you have a large estate and inheritance tax (IHT) is a concern, you should also consider maximising your annual allowance for tax-free gifts (called the annual exemption). You can give up to £3,000 a year to your beneficiaries and, if you continue to live for at least seven years, the gift is out of your estate and free of IHT.

More Information and Help

Tax planning is obviously a very complex area and the above are just the main points which apply to most taxpayers. Depending on your circumstances, there may be other opportunities available to you. If you need more information concerning the above listed issues or need help with your particular situation, please do not hesitate to contact us.