Alert. Red Alert. You have 21 days to get your personal wealth in sufficient good order to bat away the worst of what the Chancellor of the Exchequer will throw at you in the Budget.
To help you, Money Mail has come up with an action plan that you can implement in less than a day.
It will ensure you protect a big chunk of your wealth from any higher taxes (or shrinking of tax-friendly allowances) coming your way, as well as make your savings work harder for your financial benefit.
There may be bits of our plan that won’t apply to you (but to your children instead). But I guarantee that it will make October 30 less painful than it could be.
Time well spent: Follow our one day guide to protect your wealth from Labour’s budget cash grab
9am: Conduct a financial audit
Sit down with a tea and do a quick audit of your household finances.
Note down how much you have in your bank account, savings and investments – either by going online or digging out latest paper statements. Find details of any Isas (cash or investment based).
Then, temporarily pushing the Isa information to one side, work out how much cash you have (in the bank and in savings).
Now, ask yourself the question: does this cash provide you with a sufficient buffer in case anything goes wrong (the boiler packing up or the car needing a repair).
You probably already have an idea of the size of cash reserve you are comfortable with. If you are working, experts say you should have a cash reserve equivalent to at least three months of household costs.
If you are retired, the cash buffer is usually higher – typically, a year’s worth of household expenses.
Cash buffers should be sacrosanct; they provide peace of mind. So, try to leave them in place and rebuild them quickly when they get denuded. They are your financial get-out-of-jail-free card.
10am: Think cash Isas
If your audit indicates that you have surplus cash sitting in savings or in your bank account, deploy it – either to open a tax-friendly cash Isa or to top up this year’s existing cash Isa. In so doing, you will protect more of your cash from tax.
Ms Reeves will not unravel this tax-wrapper on October 30, although she could give the £20,000 annual allowance a haircut from the new tax year next April.
If your cash Isa for this tax year was opened online, and it pays variable interest, you should be able to top it up online with the new money hitting the account straight away.
If it was opened in a local branch, you will probably have to pay it a visit and make a deposit.
Shelter: If your cash Isa for this tax year was opened online, and it pays variable interest, you should be able to top it up online with the new money hitting the account straightaway
If your cash Isa for this tax year pays fixed interest, you will not be able to add to it. So, instead, you will have to open a new cash Isa – either with the same provider (if they permit it) or a rival.
The maximum amount you can put in this tax year in total is £20,000 (including any contributions to an investment Isa).
For those who need to open a cash Isa with a new provider, ID checks will be required.
They can usually be completed digitally, although sometimes documents (a passport, driving licence, up-to-date bank statement) will have to be posted or taken to a branch.
The best easy-access cash Isas from mainstream providers include Coventry (4.8 per cent) and Principality (4.75 per cent).
Both accounts (respectively, Four Access and Online Bonus 5) must be opened and managed online (Coventry also allows payment via mobile phone) with the minimum opening amount being £1.
The best online fixed-rate Isas include Scottish (one year, E-Isa Issue 55) at 4.52 per cent. The minimum deposit is £500 and any additional deposits must be made within 14 days of the account being opened.
Money Mail’s savings guru Sylvia Morris shares her pick of the best savings accounts in her Star Buys table overleaf and in even greater detail at thisismoney.co.uk/save.
11am: Locate any old accounts
If you have old cash Isas from previous tax years that are paying poor interest rates, transfer them to a provider which is paying 4 per cent plus.
The transfer won’t count towards your Isa allowance for this tax year – and the new provider will do all the hard work when it comes to moving the money across.
The Coventry, Principality and Scottish cash Isas (previously mentioned) all accept transfers.
Easy and financially rewarding.
11.30am: Reduce tax on savings interest
If you are paying tax on savings interest, try to mitigate it – through cash Isas and also by buying tax-free Premium Bonds.
Although basic and higher-rate taxpayers can respectively enjoy £1,000 and £500 of savings interest tax-free because of the annual personal savings allowance, these limits are now easily breached.
Savings interest: Although basic and higher-rate taxpayers can respectively enjoy £1,000 and £500 of savings interest tax-free, these limits are now easily breached
Anna Bowes, co-founder of rate scrutineer Savings Champion, says it only requires a deposit of just over £20,200 in a one-year fixed-rate savings bond paying 4.95 per cent to produce £1,000 of interest.
Premium Bonds, from state-owned savings bank NS&I, currently offer an effective interest rate (prize rate) of 4.4 per cent with winnings tax-free.
In other words, any prizes don’t impact on your savings allowance. The maximum holding is £50,000.
Topping up is easy if you are an existing NS&I customer. The £25 bonds can be bought online or over the phone.
New bonds will not be entered into the monthly prize draw straight away; they must be held for a full calendar month before being eligible for a prize.
New customers will have to go through ID checks before being able to buy Premium Bonds. This will take a minimum seven days, maybe longer. See nsandi.com/products/premium-bonds.
A fun way to mitigate tax.
Midday: Don’t forget Investment Isas
Although cash Isas are all the rage (£371 billion is held in them, compared with £316 billion in July last year), you can also use surplus cash you may have to contribute to an investment (stocks and shares) Isa. These protect you from tax on investment gains and dividends.
Topping up an existing investment Isa is simple, especially if it is with an online trading platform (run by the likes of AJ Bell, Hargreaves Lansdown and Interactive Investor).
Opening a new investment Isa on a platform is also straightforward and should only take minutes. All you need to give them is your address, debit card details and National Insurance number.
Given tensions in the Middle East, it may pay to make your contribution into an investment Isa and then either wait a while before investing or staggering your investment over a few months.
12.30pm: Consider bed and Isa
If you have shareholdings outside of an Isa, consider putting them inside the tax-friendly wrapper.
This is because Ms Reeves is likely to increase capital gains tax (CGT) rates on profits made from share sales. Holding the shares inside an Isa means you will avoid paying any higher taxes.
Currently, for basic-rate taxpayers, CGT on profits from shares is charged at 10 per cent (it can be more) – while higher and additional rate taxpayers pay 20 per cent. These charges are mitigated by the first £3,000 of any annual gain being tax-free.
Transferring shares into an Isa is done through ‘bed and Isa’. The shares are sold and then bought back inside the Isa. The repurchase counts toward your £20,000 Isa allowance.
Most Isa providers offer bed and Isa services. Anyone thinking about bed and Isa should understand that the initial sale will result in a CGT charge if the gain exceeds £3,000.
As well as the investments transferred into the Isa now being CGT-protected, the dividends are also tax-free.
Dividends earned outside an Isa in excess of £500 a year attract tax as high as 39.35 per cent. A shrewd move all round.
1pm: Keep kids/grandkids in mind
Just before a break for lunch, think about contributing to Junior Isas (Jisas) that you have set up for your children – or maybe to a Jisa opened by your kids for their offspring.
Helping hand: The current maximum annual contribution that can be paid into a Junior Isa is £9,000
The current maximum annual contribution into a Jisa is £9,000.
If you haven’t set one up for a son or daughter under the age of 18, it’s easy to do if you have an existing account with an investment platform (it takes minutes).
You can then decide what investments to buy – cash-based Jisas don’t make sense, especially if you are opening one for a newly born child where the investment time horizon is 18 years.
2pm: Time to think pensions
Post-lunch, it’s time to turn attention to your pension (some readers will already have accessed their pension, so this section will not be directly relevant although they may wish to pass on details to their children).
Although Ms Reeves has ruled out changing the amount of tax relief available on contributions into a pension fund, there are other pension nasties she could announce in the Budget.
These include a reduction in the annual amount you can pay in while benefiting from tax relief on contributions. This currently stands at £60,000.
Cashing in: Currently, 25% of a pension fund can be accessed as a tax-free lump sum, subject to a cap of £268,275
Any reduction would not come in until the start of the new tax year, so if you can afford to, up your monthly pension contributions or make a one-off payment.
If you have a child, think about taking out a pension on their behalf. You can contribute up to £2,880 each year which will then be topped up by basic-rate tax relief, worth up to £720 a year, resulting in a gross contribution of £3,600.
As we report on page 29, Ms Reeves could also reduce the cap on tax-free cash that you can take from your pension once you hit age 55.
Currently, 25 per cent of a pension fund can be accessed as a tax-free lump sum, subject to a cap of £268,275.
If you are eligible to take tax-free cash – now or soon – it’s time to take financial advice, especially if it’s a sizeable sum or you’ve earmarked it for paying off a debt such as a mortgage.
If you haven’t got an adviser, speak to friends just in case they can recommend one that they use. Or go to unbiased.co.uk and find one local to you.
3.30pm: A financial eye on the future
After topping up your Isa and/or pension, you might feel as if you’ve done enough financial manoeuvres for one day.
Understandable, but don’t forget about inheritance tax, which Ms Reeves sees as providing a rich stream of future tax revenues.
There are some simple IHT-mitigation steps that can be done straight away, based essentially around gifting.
So, you can use various allowances to gift money to loved ones which are 100 per cent IHT-free and will not be added to the value of your estate when you die.
These include the annual exemption gift allowance of £3,000, which can be boosted by any unused exemption from the previous tax year. Small gifts of up to £250 per person can also be made.
Do keep a record of the gifts you make – it will make life easier for your executors when it comes to sorting out your estate.
6pm: Time to reward yourself
It might have been a hard day’s work rather than a hard day’s night. But if you’ve acted on any bits of our plan, it’s time to chill and have a glass of fizz in celebration.
You’ve earnt it and your wealth will be better protected than it was nine hours ago.
Jeff.prestridge@dailymail.co.uk
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