With GB Ltd borrowing to the extent of creating the highest debt to GDP ratio since 1960 our Chancellor needs to start balancing the books in April. Last chance saloon for pension investment?
Market Commentary
In a world of low interest rates and yields investors are increasingly taking risks by shifting from TINA (there is no alternative) to TRINA (there really is no alternative) and this is in part what is driving markets.
Tax Will be Taxing
‘Tax need not be taxing’ This was the catchphrase used by the Revenue some years ago, but many of our clients are not convinced.
Now don’t run off with the idea that all of our efforts should be devoted to thwarting the taxman, as I said to a client (who had a pathological hatred of HMRC) we could invest your money in such a way as to ensure that you lose the lot – meaning that you will pay no tax and indeed might be able to reclaim some tax paid previously. The client decided against this course of action.
So, it is important to take tax into account but not let it wag the rest of the dog, some tax effective ideas that can work as part of your personal planning follow:
Pensions – from a tax perspective they are too good to be true; marginal rate tax relief on contributions, grow largely free of tax, 25% tax free when drawn down and (providing structured correctly) escape IHT. Very tempting target for Mr Sunak, these.
ISA’s – Stack away £20,000 per tax year per person equals £100,000 (plus growth) in your own personal tax-free fund in only five years, the numbers stack up. Transferable between spouses on death. Use it or lose it allowance.
CGT – the ‘nice’ tax – up to now, that is. The main rates are relatively low (10 and 20%), the first £12,300 of any gain in a tax year is tax free and you can offset losses against gains to pay less tax and even carry losses forward to use in future years. If you are likely to make significant gains it could be a good idea to get them out of the way in this tax year when most gains will be taxed at only 10 or 20 percent.
Sexy stuff: In this context sexy means attractive but risky. HMG allows investment into new and growing businesses, many of which fail. Because the Government want to encourage new start-up businesses, they allow generous tax breaks. Examples include: EIS, VCT’s SEIS etc. These are not for everybody due to the risk entailed - our website domain name is ‘risk and return’ and there is potential for both here.
Summary
We (UK plc) have borrowed loads of money and now will come payback. However, the balancing act is to shear the sheep but not to kill and eat it. Inflation may result. Tax changes happily are not normally retrospective.
p.s.
Always a silver lining... My wife’s holiday fund has grown from Blackpool to Barbados proportions. The kids are getting sick of social media (although increasing numbers of oldsters are embracing it). I have bought a pushbike and begun (loudly) questioning some car drivers’ abilities. Yes, the bike is electric, but only because of badly thought-out geology and lack of Roman input.