The new tax year has commenced and whilst many people are aware of the tax breaks available to them, its worth pointing our a few areas of change for this tax year. There are major changes to the ways dividends are to be taxed. Changes to the rates of Capital gains tax will also come into effect from the 6th April 2016. Here's a brief outline:
ISA Allowance 2017/18
The ISA allowance for this tax year has increased to £20,000, it is still important to use your allowance if possible. Unfortunately, the interest on cash Isa is at an all-time low. However, for many long term investors a low risk stock and shares Isa might be an alternative option.
New Personal Savings Allowance
The Chancellor has introduced a new personal savings allowance from 6th April 2016. The first £1,000 of savings interest will be tax-free if you are a basic rate taxpayer, whilst the first £500 will be tax-free if you are a higher rate taxpayer.
Changes to Dividend Tax
From the 6th April there will still be the £5,000 tax-free dividend allowance for investors. If you hold investments that are not in tax efficient, such as Individual Savings Accounts or pension savings and are subject to the new dividend tax then it is important that you seek financial advice. We would recommend investors should review the impact of the dividend tax changes might have on them.
Capital Gains Tax Rates
The rates of Capital Gains Tax – which is a tax on the profits made from the sale of assets – will be reduced for some people from 6th April 2016. The CGT rate will be reduced to 10% for basic rate taxpayers, while the rate for higher rate taxpayers will fall from 28% to 18%.
However, the capital gains tax rates due on disposal of residential property will remain 18% for basic rate taxpayers and 28% for higher rate taxpayers. The Annual CGT tax-free allowance will remain unchanged at £11,100.
Investors with assets subject to CGT, for example large share portfolios it might be worth reviewing these based on the new CGT rates and the impact of the dividend tax changes.
Making a contribution into a pension is still one of the most tax efficient investments you can make. As well as growing in a tax efficient way, pension contributions can be used to reduce your current income tax liability. If you own and run a limited company, then your company could make an employer contribution to reduce its corporation tax bill.
At retirement you will be entitled to up to 25% as a tax free lump sum and the remaining funds are used to generate a taxable income. The rules relating to pensions and retirement planning can be complicated and not suitable for everyone. We recommend you seek advice on this subject.
These are just a few of the financial advice tips for 2017/18. If you want to talk in more depth please feel free to contact us.
Choosing the correct Ethical or Socially Responsible investments will depend on your own beliefs and values. A starting point is to use a screening process.This will help you to analyse which types of industries and companies they would like to either include or exclude.
There are primarily two types of screening, positive and negative.
The process of Negative Screening excludes investments that you might consider undesirable. For example you might want to exclude some of the following:
Positive screening helps to identify the businesses that demonstrate the potential to offer good quality, long-term ethical investment opportunities. The positive screening process will help you to avoid businesses that could encounter problems as their day to day operations might not be sustainable in the long term. Positive Screening might include companies involved with
By employing active shareholder engagement it is possible for shareholders and fund managers to encourage a more corporate and social business approach.
It makes sense to consider investing into companies that have the foresight and willingness to adapt.
Anyone seeking evidence that investment decisions can be hard often needs to look no further than the front page news. China, oil, VW and Glencore are among the assets that have made the headlines in the past few months after suffering sudden, unexpected and dramatic changes in price.
Investors with exposure to those volatile assets might be licking their wounds and reconsidering their positions. This is because many investors have an investment strategy that relies on their (or someone else’s) forecasts about the future. In the simplest terms, their starting point is a blank sheet of paper, where they build a portfolio of assets they think will do better than the alternatives. Sometimes those decisions are right; sometimes they are wrong.
We have a different starting point. Our investment philosophy is based on things we know rather than things we don’t know. For example, we know that financial markets do a good job of setting prices, so we don’t try to second-guess them. Instead, we begin with the belief that investors will, on average and over time, receive a fair return for investing their money.
Our aim is to give our clients access to that long-term return through broadly diversified, low-cost portfolios of assets that aim to beat the market average. The portfolios do this by using information in market prices that tells us about a security’s characteristics and its expected future returns.
The decisions we make about what assets to hold are based on decades of academic research rather than short-term hunches. This means we can focus on meeting your long-term goals rather than becoming absorbed by short-term market movements.
Generally speaking, investment decisions are hard, but if, like us, you start with information you know is backed by decades of evidence and build an investment philosophy and strategy around it, we think you can improve your chances of being a successful investor.