Investment Changes in the New Tax Year
Author(s)Mike Cracknell
Although many people review their personal finances towards the end of a tax year, it is prudent to be mindful of any changes being introduced by HM Revenue & Customs (HMRC) at the start of the 2008/09 Tax Year on 6 April.
Investors in Personal Equity Plans (PEPs) and Individual Savings Accounts (ISAs) should be aware of the following changes in rules effective from 6 April 2008:
1. The distinction between Mini ISAs & Maxi ISAs has ceased.
2. There are no more PEPs. Existing PEPs automatically become stocks and shares ISAs and are subject to ISA rules.
3. Mini stocks and shares ISAs and the stocks and shares components of Maxi ISAs have automatically become stocks and shares ISAs.
4. Mini cash ISAs and the cash components of Maxi ISAs have automatically become Cash ISAs.
5. TESSA only ISAs become Cash ISAs.
6. The annual ISA investment allowance becomes £7,200 from £7,000, which can all be invested in a stocks and shares ISA, or up to £3,600 can be invested in a cash ISA and the rest in a stocks and shares ISA (with either the same or a different provider).
7. Cash ISAs can be transferred into stocks and shares ISAs, if required.
These are technical changes and no specific action is needed by the individual but Independent Financial Advice is strongly recommended where an investor is contemplating a switch between ISA providers, to take into consideration such areas as risk profile, charges, etc.
A reduction in the Basic Rate of Income Tax from 22% to 20% took place on 6 April 2008; whilst this seems good news, there are some disadvantages:
1. The starting rate Income Tax Band has been removed. In 2007/08 this was £2,230 and was taxed at 10%.
2. Contributions to a Personal Pension Plan or a Stakeholder Pension Plan are paid net of Basic Rate Income Tax by the planholder with the Insurance Company claiming a corresponding amount of Tax direct from HMRC. This was 22% (for 2007/08) but as from 6 April 2008 is 20%, meaning that an individual will need to pay more into their plan if they wish to maintain the same level of gross payment.; for example, £100 per month equated to £78 net prior to 5 April 2008, but increases to £80 net from 6 April 2008.
Written by Mike Cracknell, Independent Financial Adviser at Birkett Long Financial Services. Mike can be contacted on 01206 217309 or by email mike.cracknell@birkettlong.co.uk. Birkett Long is authorised and regulated by the Financial Services Authority.
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