Looking beyond fund performance
There will be many guides and summaries out there aiming to make sense of the latest statement and how it impacts us in the UK, but this post focuses on how budget changes can potentially relate to your use of tax allowances and shelters which the Government make legally and ethically available.
Whilst many of us perhaps (of course) fixate on how our investments are performing overall, there are other areas we could be looking at to ensure we are not losing out unnecessarily.
As basic as it may seem, if the investment is not ‘held’ correctly, it can mean losing money unnecessarily to the taxman thereby reducing your returns. Single digit investment returns per annum are expected now by many1. But get the tax status wrong by accident and the tax charges are DOUBLE digit (10%, 20%, 40%, or even 60%!)2 – impacting not just the super wealthy but the average person in the street too. Tax shelters, their benefit(s) and suitability for purpose, may change because of amendments announced in the Budget statement.
What to look at
We can start by asking ourselves the following… because of any budget changes, are my savings, investments and assets still ‘held’ in the right name, ownership and/or tax shelter? What effect might any changes have on my or my partner’s:
- Welfare benefits?
- Savings, investments and other assets?
- Tax treatment on any gains your personal or jointly held savings, investments and assets may enjoy?
In this context, ‘right name’ means, is the asset held in the right name at the time the asset is to be needed and distributed? This could be as simple as ensuring:
- Your and your partner’s tax codes are correct and are being applied accurately,
- Your cash / money on deposit in bank accounts is spilt between you and your partner to ensure you are allocating the interest received by making best use of your personal allowances, and
- You and your partner are making pension contributions to the right person’s pension fund to claim the tax relief now, but not lose money by paying too much tax when either of you take your pension.
Have you placed your and your partner’s savings, investments, and assets under an appropriate trust to:
- Pay the right money to the right person or charity at the right time,
- Avoiding time consuming wait for probate, and
- Not lose money by paying too much inheritance tax, legally and ethically?
Are your and your partner’s savings, investments and assets held in single names, jointly owned or (and please forgive the jargon), cross proposed? You and your partner could be missing out on making use of your joint allowances, where they are applicable.
Are your and your partner’s savings, investments and assets in the right tax shelter allowing you to:
- Reclaim tax back that you are owed – for example on pension contributions,
- Save tax on the future growth of your asset – for example an ISA, and
- Defer tax until you want to access or spend the asset when your tax position and the taxation on the asset may be less than it is today?
Investors do not pay any personal tax on income or gains within an ISA. Tax treatment varies according to individual circumstances and is subject to change.
Trusts and taxation advice is not regulated by the Financial Conduct Authority.
If you’d like our help in making sure you don’t miss out on the financial planning opportunities which exist, please get in touch.
What may have been right last year may not be now.
1 Blackrock capital market assumptions
2 Buzzacott Exposing the 60% income tax rate