A multi-faceted tax raid is set to rock even the modestly wealthy in the UK, meaning it is incumbent on us all to take a long hard look at our financial strategies as the year draws to a close.
The UK’s affluent individuals are scrambling to defend their wealth from the tax raid starting in April, making this an exceptionally busy end of the year for professional advisers – and us as our users’ conduit to them.
Amid all the tax hikes which came with Chancellor Jeremy Hunt’s Autumn Statement, the halving of the Capital Gains Tax (CGT) allowance from £12,300 to £6,000 from April 2023 is certainly among those causing most consternation among our users – not to mention the fact that the allowance will be cut again to £3,000 from April 2024.
This means that a higher or additional-rate taxpayer who enjoys a mere £12,000 taxable gain will now have to pay £1,200 in tax for 2023-24 and then £1,800 for the following year. Gains above the allowance will continue to be taxed at 20%.
This is clearly a most unwelcome development, coming at a time when personal tax allowances have been frozen and the dividends allowance also slashed. The holidays may be approaching, but we are busier than ever as individuals scramble to review their strategies to ensure they are holding their investments in the most tax-efficient way ahead of the April changes.
The holidays may be approaching, but we are busier than ever as individuals scramble to review their strategies to ensure they are holding their investments in the most tax-efficient way ahead of the April changes
Landlords have comprised a significant proportion of those coming to us to find wealth management advice too, since it is estimated that the average landlord will have to pay 12% more in CGT when selling up – as many now are due to the rapidly waning attractions of buy-to-let as an income stream.
It would be easy to despair amid this multi-faceted tax raid, but we would urge all those affected to take a long hard look at their arrangements with a tax and investments specialist without delay. The experts we talk to every day assure us they are working incredibly hard to ready their clients’ portfolios ahead of the April changes. There may be a lot you can do towards tax mitigation – of all kinds.
The time-honoured technique of “bed and ISA” has naturally come to the fore following the Autumn Statement, this being selling investments held outside of an ISA and then re-buying them within this tax shelter.
Although CGT will still be owed on any profits in excess of the current £12,300 allowance, many of our users are pursuing a “bed and ISA” rearrangement of their investments quite urgently where they have not already used up their £20,000 allowance for this tax year (or, indeed, that of their spouse). Not only will the charges be lower than they will be post-April 2023, but there is also the fact that many markets remain subdued, meaning that the profits and therefore tax on those gains will also be.
“Bed and ISA” may be an easy concept to grasp, but as with all things wealth management the correct execution is all. With a professional managing the process you may be able to time the transactions so that the difference between the sale and buy-back price is minimised; they will also be able to handle the administration effectively too
“Bed and ISA” may be an easy concept to grasp, but as with all things wealth management the correct execution is all. With a professional managing the process you may be able to time the transactions so that the difference between the sale and buy-back price is minimised; they will also be able to handle the administration effectively too.
It is vital that any capital losses are reported so that they can be offset against future gains. This is something which self-directed investors can all too often neglect and is a must as we move to protect our wealth in this punishing environment.
When the Treasury starts to think outside of the (Conservative) box on raising its tax take, I would argue that it is time for diligent entrepreneurs, savers and investors to start to do likewise. Yes, the public finances are in need of urgent repair, but nobody should be paying any more in tax than they absolutely have to – particularly when their wealth as stored in assets is likely to have been taxed several times over already.
There are a multitude of perfectly legitimate tax mitigation strategies which can be deployed, and while not everyone will feel comfortable attempting them alone, this is the kind of work professional advisers do every single day. You could make some serious tax savings with the right guidance and at the very least you should make sure you are holding your investments in the most efficient way possible. Take our short wealth manager matching questionnaire to get the ball rolling fast and free.
Family and gifting are always front of mind at this time, but that is even more the case this year as people seek ways to minimise their tax burden and keep as much wealth as possible out of the taxman’s clutches.
Since this will not trigger a tax charge, many more people are considering transferring investments to their spouse or civil partner in what is known as an interspousal transfer. The benefits are naturally greatest where one side has not used their allowances at all, but it is worth considering who is the higher earner too as lower income tax bands mean lower CGT charges.
Our users are proving very wise to the need to look at CGT, ISA and dividend tax allowances as a couple – and, where they have them, to fully exploit their children’s £9,000 Junior ISA allowance too. These funds will legally pass to your children on them turning 18, of course, but it is worth considering putting any excess funds in your child or indeed grandchild’s JISA. The power of compounding over the years means that your Christmas 2022 nest egg may well turn out to be their best gift ever.
The UK’s affluent are naturally reeling from the assault on their wealth, and are likely to fear further bad news for their finances next year too. But investors should take heart from the fact that the swingeing cuts to their tax allowances are still several months off and that there is much they can do to protect their wealth in the meantime with the right professional advice.
We help affluent individuals get on the way to solving a huge range of issues spanning investment management, financial planning, retirement, inheritance, mortgages and more. All these individuals get started by taking one quick and easy step: completing our short wealth manager matching questionnaire to ascertain their needs.
Dive right in if you have a clear idea of what you are looking for in an adviser and have a few minutes to spare, or, if you would like some speak to our expert and unbiased team, please don’t hesitate to get in touch.
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