On 11 March, the Chancellor of the Exchequer, Rishi Sunak, will deliver the latest budget. As he has only been in the job for a week or so, the core themes of the budget will likely be guided by No. 10 Downing.
Every budget gets a lot of media attention, and for good reason, as they have significant impact on the finances of ordinary people like you and me. As investors, we should definitely pay attention, because if our net income is changed by fiscal measures, it could affect how much we can afford to invest, or how our investments are taxed.
While we do not know for certain what will be announced in a few weeks, here are a few things to definitely keep an eye on.
It sounds obvious, but is worth repeating – if you have more money in your pocket after tax, then you have more funds to invest. There will certainly be attention on income tax rates – leading up to the general election in December, PM Johnson pledged to raise the 40% income tax bracket from £50,000 to £80,000 per year.
If we did see this, then those earning between £70,000 and £80,000 would see a significant increase in their take home pay due to the lower amount of income tax taken. If that includes you, then consider how you can best use these extra funds.
If you prefer to receive income from your stock investments, I wrote about some high-dividend-yield stocks here. Or if you prefer potential capital appreciation, take a look at these two stocks which I think could perform very well this year.
Another key area 0f interest to investors is ISAs, and possible changes to the structure of these accounts. As investors, we mostly look at the Stocks and Shares ISA, but there is a wide variety of ISAs, including ‘help-to-buy’ and ‘lifetime’ versions.
There are rumours that the ISA structure could be simplified, perhaps by merging some types of ISAs to make it easier for people to save and invest. There could also be changes in the amount you can save (it currently sits at £20,000 per year).
If we do see changes, it could affect how you seek to invest. Using an ISA makes sense because you don’t pay tax on the capital gains you make in the account. If the threshold amount increases or decreases, you may need to reshuffle your holdings to accommodate this.
If, for example, the Cash ISA and the Stocks and Shares ISA are combined, you may want to move more of your cash holdings into stocks. Currently, the yield on a Cash ISA (approximately 1%–1.3%) is significantly lower than the current average dividend yield of the FTSE 100 (4.37%), which could be tapped by investing in a simple index tracking fund.
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Jonathan Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020