I think this budget is ideal for financial planners. Many clients will now be looking for other structures that are available, such as enterprise investment schemes (EIS), venture capital trusts (VCTs), or offshore bonds.
We already advise clients to use the dividends and capital gains tax (CGT) allowances, but now the parameters have been changed we are going to be suggesting different structures, like maximising available pension allowances, or ensuring they top up their ISAs earlier in the tax year.
The role of the financial planner is to advise clients to maximise their available allowances and negotiate some of the more technical implications of fiscal policy. This Autumn Statement is ideal for our industry, but my concern is for the ordinary investor who might have held shares for a long time, or perhaps inherited shares. They may now be forced to take tax advice from a professional.
There’s also wider-ranging impacts on ordinary investors who will now have to complete complex tax returns due to the dividends allowance change. It could potentially be more expensive to hire an accountant than the amount of revenue generated for the treasury.
We always attempt to use the pre-existing £12,300 CGT allowance. As an example, if you own a share or shares with significant gains on a discretionary portfolio, the investment manager will intentionally sell and rebuy inside this year’s ISA to use up some or all of the CGT allowance.
Another way to use your CGT allowance – even after you have maximised your ISA contribution – could be to sell some shares inside your account and rebuy a similar competing business.
That way you can remain invested, use your allowances, and maintain the balance of the portfolio. We often look at what the CGT position on portfolios towards the end of the tax year is, in a bid to use up any available allowance and take appropriate gains.
Equally, many people are unaware a husband and a wife can also pass assets to each other to utilise available unused allowances. This is particularly attractive if the receiving party is a non- or basic-rate tax payer. Depending on the gain, the starting rate is 10% rising to 20%.
Efficient use of the allowances will now be much more in focus than it had previously been. Its important to look at CGT in conjunction with the reviewed dividend allowances. Because it’s become more important than ever that high yielding stocks are sheltered inside an ISA or pension wrapper, assets such as UK gilts can be held outside and ISA as they can be encashed CGT free. Income payable from gilts is potentially taxable based on personal circumstances.
The changes in dividend tax mean you might pay tax on your investments as they rise or fall, even if you are not making withdrawals. Once we get to 2024 on the dividend allowance is only £500.
With careful planning, pensions, onshore and offshore bonds allow clients to defer some or all of their taxation until later. Depending on the circumstances, that can be appropriate for some clients.
Equally we mustn’t overlook certain tax-free National Savings & Investments products. Careful planning means making sure you have monies available to you at the time you need them most, and, while tax planning is always a consideration, everything must be considered in the context of the wider personal and family financial plan.
Ian Cook is a chartered financial adviser at Quilter Private Client Advisers
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