Category: Financial Advice

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My financial advisor, after I mentioned that for the 1^st time since last August that the funds were in plus are hopeful that this year will be much better, as long as inflation continues to slow and interest rate rises.

Plus hopefully nothing goes untoward in the Ukraine war or the relationship between America and China.

Keep your fingers cross please.

I received an email with a brochure from my financial advisor and it was mentioning about the end of tax year (Early April). So I thought I better check in.

Feedback from him.

“Otherwise, I’m glad that a very difficult year for investment returns is over and things have bounced back somewhat recently. Let’s hope that continues. Things look pretty gloomy for the UK (and Europe) right now, but starting to look more positive elsewhere (US and Far East in particular). Your portfolio is well diversified globally by Brewin so I’m feeling good about 2023 right now.”

I hope this is true, as last year was a rough ride.

This was feedback from my financial advisor after the Chancellor autumn statement.

The income tax additional rate threshold will be reduced from GBP 150,000 to GBP 125,140 from April 6th 2023. This applies to savings and dividend income across the UK, and non [1]savings and non-dividend income, except in Scotland.

The £125,140 figure is derived due to the system already in place where the personal allowance (frozen at £12,570) is gradually lost for those with incomes above £100,000 by £1 for each £2 excess. This reflects as a 60% effective income tax rate between £100,000 and £125,140. Now, rather than moving back to 40% at £125,140 it will be 45% thereafter. Pension tax relief rules were not changed in this budget and relief is still received at the highest marginal rate. Therefore, the goal for financial planning remains the same but just more important, which is to use pension contributions to receive marginal tax relief down to that £100,000 target. Complexity then arrives as we need to consider maximum pension contribution and ‘carry forward’ availability as well as Lifetime Allowance limits.

Those income tax, national insurance, and inheritance tax thresholds fixed at current levels until April 2026 will be frozen for a further two years until April 2028.

So this is what I think is the most significant tax increase. It is gradual though and only caused if we exceed those allowances, so for many people more of a squeeze. For retired people we often aim at these allowances so it could actually have the effect of flat lining pension withdrawals and leading us to rethink withdrawals from different sources to cover the increases to the cost of living in upcoming years. The cash flow modelling software I use with many of you has had this squeeze of allowances built in to 2026 and will now need to update to 2028, although I don’t expect this to have very significant negative effects on our long term planning. Let me know if you would like us to meet and update this modelling for your own circumstances and these changes.

The dividend allowance (currently GBP 2,000) will be reduced to GBP 1,000 (April 2023) and then further reduced to GBP 500 (April 2024).

A lot of existing planning has been to maximise pension and ISA holdings and with this change it just reinforces the benefits of doing that. Otherwise, expectations of tax from General Investment Accounts (GIA) or any shareholdings you have will face a small tax increase. At £500 it is just not a significant allowance at all. Also, the 8.75% basic rate for dividends is a recent uplift (for all the other bands too) and remains.

The capital gains tax annual exempt amount (currently GBP 12,300) will be reduced to GBP 6,000 (April 2023) and then further reduced to GBP 3,000 (April 2024).

This is a more significant change than the dividend allowance in terms of our planning. For example, it may affect long term plans we have for selling down any GIA accounts into ISAs (by £20,000 each year each person). The chances of those £20,000 sales causing over £12,300 of gains was very low, but it will become much more likely with an allowance of £3,000 so we will need to take care. With some care though, we still have options to mitigate potential tax. For people who sell shares each year (often ex company shares of an employer) utilising the £12,300 threshold of gains, we will need to reconsider the levels and other sources for withdrawals of capital, but still to use it whilst we can. The actual tax rates (10% and 20%) remain the same though and are still relatively low.

For residential property these rates are higher at 18% and 28%. The large reduction in the allowance will mean a shift upwards in expected capital gains tax on any investment properties you plan to sell. If you would like to discuss so that we can estimate an anticipated liability on sale please let me know, although often this potential £2,604 per person (based on 28% after April 2024) shouldn’t necessarily be enough to change any long term plans. Capital Gains Tax is not an issue for our one main residence though. Otherwise, we are still exempt of capital gains tax on death, but may cause Inheritance Tax instead. So our planning has always been quite nuanced towards this subject.

Other;

Rules on Venture Capital Trusts (VCTs) were extended to 2025 and it was announced the Government intends to continue beyond this. So 30% relief against income tax on contributions to a VCT and tax free dividends continue. Nothing changes, just our perceived value of it looks better.

A lot to take in, don’t you think?

I had a chat with my investment manager today, hopefully after the dreadful start to the year, the markets will bounce back again like they have before.

Hopefully history will repeat itself.

Since my financial review last week, there was a huge turn around in the markets, as there was good forecasts in the USA.

Today I had a financial review as the markets haven’t had a good start to the year.

This isn’t really down to the war in the Ukraine, but what is going on in America.

Hopefully were see a pick up soon.