Belfast Telegraph

Thursday 25 December 2014

Planning your finances after the Budget

Q : What issues should I be considering post-Budget with regards to my overall financial planning objectives?

A: The Budget, which was delivered almost two weeks ago, has reinforced what everyone has been aware of for some time — that the after effects of the credit crunch need to be paid for somehow and this will undoubtedly mean higher levels of tax for everyone.

The debt position of UK plc is staggering, and cannot be sustained going forward and general tax rises are one way in which the government intends to bring the borrowing down to more manageable levels.

So what we witnessed was an increased tax burden being placed on those top earners with a token gift by way of upping the ISA limit, to those savers who have been bearing the brunt of the current low interest rate levels.

In essence therefore, the budget affects very few individuals with regards to their financial planning strategy, but from a more generic perspective should send a clear sign to how you should approach your future financial planning.

In its simplest form, financial planning is all about trying to accumulate future wealth by sacrificing income today, so that at some future point, you will be able to call on that accumulated wealth to help you fund your objectives.

And in the meantime, put in place safety measures so that if an unforeseen event occurs, you or your family’s plans are not put in jeopardy.

The squeezing of both the amount of tax relief given and the contribution rates available to be put into pensions for those enjoying significant incomes, should send out a signal to everyone who is planning for their future retirement.

As I mentioned earlier, we have seen the first tax rate rise for many years and if the commentators are to be believed it may not be the last.

It is therefore important to build in a degree of flexibility within your financial planning strategy which ensures that not all of your income is built up in a restrictive environment that may mean you defer the payment of tax now, but potentially pay a higher rate of tax at some future point when you choose to draw the income.

The extension of the ISA allowances may mean that building funds up in a tax favourable environment for the future, but forgoing tax relief now may be sufficient for the majority of people.

Similarly the low capital gains tax limits for higher rate taxpayers may be another attractive option to consider as a way of accumulating future wealth that can be drawn upon in a tax efficient manner.

As with all planning, the starting point has got to be defining what is it that you are trying to achieve, and once that has been clearly established, working out the best steps to meet those objectives.

As you work out those steps, tax rates now, together with the likely tax rate that you face in later years should be taken into account, but should not be the sole basis that a plan is put together.

Other issues that you need to consider are the amount of risk that you are prepared to take as well as the timescales you have before you are likely to need the capital or income.

Factors like this budget just provide an ideal catalyst for you to take some time out and review your objectives, together with the current plans you have in place, in order to ensure they are best placed to help you get to where you want to be.

Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact: raymondm@johnstoncampbell.com or telephone (028) 9022 1010

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