Research has proven that investing sustainably doesn’t necessarily impair returns at all – and may in fact be key to achieving good performance in a rapidly changing world.
The end of the tax year on April 5 is an opportunity for higher-earners to put their wealth in order with Financial New Year Resolutions, explains Charles Calkin, financial planner at James Hambro & Co.
Pension contributions can be a good way for business-owners and higher-earners to limit income tax liabilities in the current financial year.
Currently, individuals can contribute up to £40,000 gross in a year and usually receive income tax relief at their marginal rate on contributions. Those who have not maximised pension contributions in the last three years can carry forward any unused allowances into this tax year.
However, there can be complications so take professional advice. Exceeding your contribution limits can lead to an additional tax charge.
Individual Savings Accounts are a rare gift from the taxman. Placing your savings within ISAs can save you thousands of pounds in tax. Each tax year you can put £15,240 in cash or investments within an ISA wrapper.
Under-18s can put up to £4,080 into a Junior ISA. Parents or guardians have to open the account for the child and manage it, but the money belongs to the child and they can withdraw it when they turn 18. Unlike pensions, a previous years’ ISA allowances cannot be used retrospectively.
Those with assets outside their pension and ISA tax wrappers sometimes forget about their CGT allowance, or annual exempt amount, as it is also known.
Selling assets held outside a tax wrapper can make you liable for as much as 20% CGT. This might have a big impact. On occasion, people go into care and have to sell assets to cover costs, resulting in significant CGT bills when they can least afford them.
The response is, where possible, to rebase the cost of these assets regularly before the growth exceeds your CGT allowance. Traded assets can be sold and bought back immediately in an ISA. They might also be sold then immediately repurchased in your spouse’s name. However, you cannot simply sell them and buy them back immediately without the ISA wrapper. Outside an ISA, you must wait 30 days after the sale to repurchase, potentially exposing you to market risk.
One partner being the sole owner of all your savings prevents you taking advantage of the allowances available and can result in paying tax unnecessarily. You both have a CGT allowance of £11,100 and a personal income allowance of £11,000. You each have a dividend allowance too, which means you do not have to pay tax on the first £5,000 of your dividend income. Basic-rate taxpayers all have a personal savings allowance of £1,000 which they can earn in untaxed interest. Higher-rate taxpayers have a £500 allowance, but additional-rate taxpayers go without.
By planning ahead and approaching their finances intelligently, couples could reap significant benefits, particularly those approaching retirement.
While reviewing finances, it is also worthwhile checking if your wills are up to date, putting in place Powers of Attorney and ensuring pensions and other assets have been assigned a nominated beneficiary or successor.
If you’d like to start a conversation with James Hambro & Co please contact the Find a Wealth Manager team HERE. They will ensure you get direct access to the investment professional who matches your profile.
The investment strategy explanations contained in this piece are for informational purposes only, represent the views of individual institutions, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.