JANUARY is traditionally a month of self-imposed austerity and resolutions to do better. Despite a recovering economy, in an environment of high unemployment, rapidly rising prices and a less generous state, keeping one’s finances under better control ought to be topping many 2011 resolution lists.
While the VAT rise will be foremost in all of our minds, there are plenty of other tax changes and planning measures scheduled for 2011. Staying on top of your money requires forward thinking. Not only do you need to think about what you want to achieve, but you also need to be aware of changes to legislation.
That doesn’t just mean government measures; decisions taken at a European or even an international level could have a knock-on effect on individuals. The key to managing your finances is not to be taken by surprise: here are some of the issues you need to be watching this year.
Despite high inflation, the Bank of England is expected to keep monetary policy highly accommodative this year. However, that does not rule out the (strong) likelihood that we will start to see interest rates rise at some point this year – many economists have pencilled in a small increase in the second half. A rise in rates has the potential to affect mortgage deals and whether you choose to fix or float. The Council for Mortgage Lenders (CML) believes that remortgaging rates will be low this year because standard variable rates (SVR) will remain attractively priced.
As of 6 April, the personal limit for ISA contributions will increase to £10,680, which means couples can shelter £20,400 from income and capital gains tax. Half of your annual allowance can be placed in a cash ISA. The allowance will increase annually in line with inflation.
Parents should also be ready for the introduction of the Junior ISA in the autumn and watch out for further details such as the annual allowance.
2011 is going to be a year of change for pensions and unlike ISAs, the changes to the pension rules are not all to investors’ advantage, says Adrian Lowcock, senior investment adviser at BestInvest. From 6 April, the maximum amount which can be put into a pension each year, and still qualify for tax relief, will be cut to £50,000 from £255,000.
Therefore, anybody considering topping up their pension by a significant amount should do so before the end of the tax year, advises Lowcock. From April, unused allowances can be carried forward for up to three years giving the potential to pay up to £200,000 into a pension for those who do not make the full permitted contribution each year.
As of 2011-12, pension holders will also no longer have to buy an annuity and could continue to invest or take the income drawdown option. The government is also expected to confirm its position on early access to pension funds after the consultation period ends in February.