Is there any cheer against the doom and gloom?

The terrible events in the Ukraine continue to cause ripples across the globe. From a personal perspective, the suffering and hardship of all people involved in the conflict will no doubt still be very much in the thoughts of us all. Many of you will also have been hearing of the continued impact that the conflict has had on European and world economies.

It means that this month’s UK budget may include some announcements that we do need to take notice of. The Chancellor of the Exchequer will be opening his red briefcase on 15th March 2023, when we’ll know how much of what we earn, own, sell, and spend will need to be paid to the Government ongoing.

• The backdrop is still major uncertainty – Ukraine remains centre stage of course, but despite early signs of reductions, or at least the slowing down of increases, inflation and interest rates loom large, and energy bills remain eye wateringly high for many.

• There are legal and ethical ways to help retain more of your money and assets, but as some are time sensitive, please don’t miss out due to your attention being elsewhere.

• The right name, ownership and tax shelter in which you hold your assets and liabilities can help you retain more of your wealth at these challenging times – and they are not just for super wealthy people!

Is it all doom and gloom? Well, while the macro environment may be framing our mindset one way, one defence we can all use is our ‘present’ behavioural bias so that we value and maximise what is ‘in front of us today.’ For many the Budget may mean less spending power in real terms. There are, however, defences to use to balance that feeling of loss you might feel when the reality of these tax changes hits your pay packet in April.

Please remember there are a range of tax allowances and shelters which are legally and ethically available for you to use today. You do not need to be a celebrity using complex offshore tax havens and schemes!

Why bother?

Simply put, if an asset (or liability) is not ‘held’ correctly it can mean losing money unnecessarily to the taxman and reducing returns. Get the tax status wrong by accident and the tax charges are double digits (10%, 20%, 40%, or even 52%!) – and this impacts the ‘average’ person in the street, not just the super wealthy!

The starting point is to ask the question, “because of any UK budget changes, are you and/or your partner’s hard-earned savings, investments and assets impacted by way of:

• Welfare benefits,

• The amount held in you or your partner’s savings, investments and assets, and

• The tax treatment on any profit / gains on savings, investments and assets?”

Three sense checks:

1. Right name?

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:

• You 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.

2. Ownership

Have you placed you 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 you 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.

3. Tax Shelter

Are you 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?

The above might seem complicated and often people only get the full job, half done. This is where a professionally qualified adviser can help make sure you do not miss out on the financial planning opportunities which exist.

What may have been right last year may not be now due to the UK Budget, so please take time out and check.

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

For ISAs, Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

 

 

Tax treatment varies according to individual circumstances and is subject to change.

Stocks and Shares ISAs invest in Corporate bonds; stocks and shares and other assets that fluctuate in value.

Trusts/Inheritance Tax and Tax Planning are not regulated by the Financial Conduct Authority.

Approver Quilter Wealth Limited, Quilter Financial Limited, Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 13.02.2023