Keeping (financially) fit and flexible for the new government

Many of us are busy watching the Euros and the T20 World Cup, as well as looking forward to the Paris Olympics. But it’s also a time when we should all be looking at our financial arrangements.

As predicted, the Labour party won the July 2024 general election. It’s more important than ever to think about how agile your portfolio is and how quickly it could adapt to any changes set out by the new government without leading to significant tax leakages.

We’ve already seen a drastic reduction to allowances over the last few years, including the dividend allowance lowering from £2,000 to £500, and the capital gains tax allowance moving from £12,300 to £3,000.

More people are coming to us wanting to review how much capital they hold in interest bearing accounts or accounts that generate dividend income or capital gains. To keep their money agile and adaptable to potential changes in the tax environment, many are looking to restructure the way they hold capital so they are not forced to pay tax at potentially higher rates.

Financial flexibility doesn’t occur by default. It comes from knowing how your investments are structured, which tax wrapper you’re currently using, and what options you have within this to be able to adjust or apportion tax differently. Once you know this, you can structure your money so that you stay in control of your tax situation or have a plan in place to change it over time (tax permitting).

Continue to have financial health check-ups

While we are not fully aware of all of the changes Labour could implement, –it’s not unreasonable to assume that there will be changes to the tax regime, changes to interest rates and inflation, and changes to your personal circumstances. That's why we have regular catch ups to review your plans and check in that they remain fit for purpose and flexible.

Check gains now

If you have a general investment account and it has been running for some years, it could hold inherent capital gains. It’s important to find out what those gains are. We can help you to understand whether now is the right time to consider crystallising some of them (i.e. selling an asset to realise capital gains) or if there are other planning options available that would benefit you.

Consider alternative routes

Although a general investment account can be used to fund some aspects of tax-efficient investing, there are alternative options. There are other tax wrappers or as we call them ‘doorways’ you can travel through to defer tax or obtain different exemptions and allowances. When you need or choose to take income or capital, you can be methodical and deliberate in choosing how and when you pay tax if you have various doorways to access funds. You can decide if you open or close a particular doorway throughout a tax year and/or a trading year, and use allowances and reliefs within traditional rules.

It is, however, pertinent to understand the suitability of these types of tax wrappers and the pros and cons of each so you have a clear view on the associated risks. You should also bear in mind that any current tax rules are subject to change and depend on individual circumstances.

Think about taking considered risks

If you pay a high level of tax but at the same time want security and easy access to your money, adding gilts to your portfolio might be a sensible option. While any interest earned on gilts is subject to income tax, it is exempt from capital gains tax. This can be particularly attractive for higher or additional rate taxpayers.

In comparison to cash, the level of investment risk associated with gilts is higher – you might not get back the value of your investment unless you hold to maturity.

Many families do not realise how they can apportion their assets between their husband, wife, civil partner, children or grandchildren.

By restructuring your assets, you can potentially use some of their annual tax allowances to mitigate your own liability. With careful and considered planning, you can reapportion your money to shelter it from any potential future tax hikes and reduce your estate from inheritance tax, if applicable.

It’s extremely important to speak to your planner if there is something happening within your overall financial plan that they may not be aware of. For example, the interest on your deposits has increased or you are selling a rental property. Your planner will be able to talk to you about the most tax-efficient way to structure any profits or gains or be mindful of income and where it is coming from.

For more details on how you can keep yourself financially fit and healthy, book an initial consultation online, call us on 020 7189 2400 or speak to your usual Evelyn Partners contact.