2021 looks set to present some unique challenges. As the coronavirus pandemic continues to threaten health and impinge on our liberty, its financial effects – coinciding with the UK’s withdrawal from the EU – are sure to hit us all as the year unfolds.
Here are three things you can do to get your finances in shape to deal with some uniquely 2021 problems.
1. The coronavirus pandemic
The coronavirus pandemic will continue to affect all of our lives this year. But what can you do now to help mitigate the impact of the virus on your finances?
- Saving during coronavirus
If you or a loved one is struggling to keep on top of regular outgoings during the pandemic, considering paying your future self first.
Rather than putting aside the money you have left at the end of each month, make pension contributions, or put money into savings first and budget with the remainder. Setting up regular payments means you might not miss the money now, but you will appreciate it when your retirement arrives, however far off that might be.
- Managing your investments
The FTSE fell by more than 14% last year but many forecasters expect a rally by the end of 2021.
The certainty that came from the Brexit deal and the UK’s subsequent withdrawal from the EU has helped businesses but with the coronavirus pandemic still with us, market uncertainty remains.
Remember that your investments are based on long-term goals and that unless your goals have changed, your investment strategy shouldn’t either.
Staying non-emotional and avoiding knee-jerk reactions during periods of market volatility isn’t easy but we can help. We have a vast amount of experience at Globe IFA and have seen market crashes and short-term uncertainty before.
When the markets fell in March 2020 our message was clear. Don’t panic, stay invested, and focus on the long term. 2020 went on to be an even more difficult year than imagined, but it is clear that a knee-jerk withdrawal of funds in March would have seen you miss out on the partial recovery that followed.
Source: BBC
The general trend of the market is an upward one, so ignoring the noise of coronavirus and Brexit this year will give you the best chance of seeing good long-term returns on your investments.
2. The Brexit effect
The Brexit deal has meant certainty for some aspects of daily life, but questions remain too.
- Your State Pension if you live in the EU
If you are resident in an EU country but receiving a UK State Pension, rules will stay the same for you.
Not only will you still receive the State Pension, but you will also benefit from State Pension increases, even if you moved to the EU after 2020. The State Pensions is set to rise by 2.5% on 12 April 2021, meaning a full State Pension rise to £179.60 per week (£9,339.20 per year).
- Managing your travel plans
Under new post-Brexit tourism rules, you can travel to most EU countries for up to 90 days in any 180-day period without a visa.
Slightly different rules apply for Bulgaria, Croatia, Cyprus, and Romania.
To stay longer, for example, to work, study, or for business travel, you might need to apply for a visa or work permit, dependant on where you are travelling to.
If your current passport is less than ten years old and has at least six months left on it, you won’t need a new one yet. When you do need a new one, be sure to begin the process in plenty of time in case of delays.
3. Tax changes
At the end of last year, we looked at how the government might look to recoup their coronavirus spending and asked what tax reforms might 2021 bring?
It’s too early to say what changes, if any, we’ll see at the Chancellor’s next Budget on 3 March.
With the pandemic still very much a part of all our lives, though, the announcement is sure to focus on coronavirus spending.
Tax reforms might well wait until later in the year, but the main changes we might see then include:
- Income Tax
A Conservative Manifesto promise, an Income Tax freeze could be lifted in light of the coronavirus overspend.
An Income Tax change might mean lowering thresholds. The tax would become payable at lower incomes and higher rates would kick in earlier too.
The Treasury’s ‘Tax after Coronavirus’ enquiry might give some clues when it releases its report, expected before the Chancellor’s March Budget.
- Capital Gains Tax (CGT)
The Office of Tax Simplification (OTS) recommended changes to CGT in their response to the Chancellor’s review request in July of last year.
It was suggested that the recommendations could double the numbers paying the tax, leading to revenue of £70 billion over the next five years.
This could be done partly by aligning CGT and Income Tax rates, but March might be a little early to see such a big change.
- Inheritance Tax (IHT)
IHT has also been on the radar for some time. Changes could be to remove the ‘seven-year’ rule that sees IHT payable on gifts when death occurs within seven years of the gift being made.
Again, IHT isn’t an easy sell for the Chancellor, especially in the middle of a pandemic, so changes might be less dramatic or delayed to after the coronavirus crisis has passed.
- Wealth tax
It has been suggested that a one-off wealth tax could raise £260bn. The Chancellor has already gone against the government-backed report, saying that he does not think a wealth tax is appropriate.
Get in touch
The continuing threat of coronavirus and uncertainty around certain aspects of Brexit will make for another challenging year.
If you would like help with any aspect of your finances as we head into 2021, get in touch. Please email hello@globeifa.co.uk or call 020 8891 0711.
Please note
The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
