Wealth management companies will currently be looking atadjustments to client investments for the current tax year and the start of the next tax year. Asset management is a critical element of wealth management, allowing customers to use tax-efficient investment vehicles and maximise their allowances where applicable. What are your options as we approach the end of the tax year?
Tax efficient investment vehicles
Traditionally, many people meet with their wealth management adviser towards the end of the tax year. This gives the opportunity to review your investments and also look at tax-efficient vehicles such as:-
ISAs
The first ISA was introduced in 1999, allowing investors to shield investment income and capital gains from taxation. Over the years, the ISA allowance has increased, and it now stands at £20,000 per annum per person. It is important to consider ISAs in relation to your asset management as there are potential long-term benefits.
Under the guidance of wealth management advisers, many investors have amassed ISA investments above £100,000. In recent weeks we have seen rumours and counter rumours regarding ISAs and what may or may not happen in the future. For example, there is speculation that the annual allowance may be cut or the maximum ISA value could be capped at £100,000. While pure speculation, this is potentially something to discuss with your wealth management adviser.
SIPPs
Recently, we have seen some significant changes to pension regulations in the UK, which will impact investment vehiclessuch as SIPPs. You can currently contribute up to 100% of your annual income into a SIPP with a maximum allowance of £40,000 per annum. It is worth noting that you will receive income tax relief on any investment into your SIPP. As with ISAs, your SIPP investments are free of income and capital gains tax.
When looking at asset management, SIPPs can be advantageous as they are incredibly flexible. However, it is vital to take advice from your wealth management adviser as other options may better align with your financial situation.
Capital gains tax
As we touched on above, ISAs and SIPPs offer an umbrella from tax which can prove very useful in the long term. However, there may be situations where you need to realise a capital gain outside of these tax-efficient investment vehicles. Until 5 April 2023, each individual will have a capital gains tax allowance of £12,300 per annum. In effect, the first £12,300 of capital gain (taxable gain) crystallised in the current tax year will not be subject to tax. This should be one of the core subjects discussed with your wealth managementadviser as we approach the end of the financial year.
Unfortunately, in the 2023/24 tax year, the capital gains tax allowance will fall to £6000, and in the 2024/25 tax year, it will fall again to £3000. When it comes to wealth management and asset management, these are factors which your investment adviser will take into account, as a matter of course.
Fail to prepare, prepare to fail
Wealth management companies will all be experiencing thetraditional rush to adjust investments before the end of the tax year. In reality, allowances rarely change mid-tax year; therefore, there is usually more than enough time to plan ahead. While each scenario will vary, it may be that you can crystallise capital gains, making use of tax-efficient vehicles to retain the same asset allocation. Asset management is an integral part of tax planning as various alternative investments can help address potential tax liabilities.
Advice, advice, advice
Tony Blair famously quoted education, education, education. However, when it comes to wealth management and asset management, it is advice, advice, advice. So please don't leave it too late!