- Blogroll (39)
- 16/01/2012: Where next for the economy?
- 30/12/2011: Pensions and Divorce
- 15/12/2011: Peppa Pig Does So Love Muddy Puddles
- 22/11/2011: If you must fear, don't fear the stock markets ... fear inflation
- 27/09/2011: Holidays have much in common with financial audits!
- 21/07/2011: The outlook is more encouraging from Kazakhstan!
- 28/06/2011: Pensions have a lot in common with kitchens!
- 25/05/2011: Not All Plain Sailing
- 07/04/2011: Now is the time for mortgage advice
- 29/03/2011: Budget proposals that affect financial planning
Good reason to arrange your investment ISA now!
The first budget of the new coalition Government is due in just two weeks, on 22 June. Prime Minister David Cameron has warned of “difficult decisions on pay, pensions and benefits”. He has not unexpectedly stated that the situation is “even worse than we thought” and “because the legacy we have been left is so bad, the measures to deal with it will be unavoidably tough.”
So we cannot say that we have not been warned!
Rise in Capital Gains Tax
There have also been very clear statements that taxes will need to rise substantially, and particularly of concern to investors, big and small, is the prospect of a rise in capital gains tax from a flat 18% to fall in line with the income tax levels, currently 20%, 40% and 50%. As CGT is added onto a person’s income in the year that the gain is taken, a basic rate tax payer could suddenly find themselves paying 40% tax on a large gain. To make things worse we know that the LibDems had wanted to reduce the annual CGT exempt amount from its current £10,100 down to £2,500.
David Cameron has been at pains to try and put investors’ minds at rest and there does seem to be the possibility of the re-introduction of some form of taper relief so that long term investors have some relief from gains partly caused by inflation. There has also been talk of special reliefs for investors who are age 65 and over. Will the new rules start from 6 April 2011 to give investors time to carry out some tax efficient rearrangements of their portfolios, or will the changes be immediate or even backdated to the start of this tax year? The latter would be a nightmare for HMRC. The truth is that we simply do not know and it is even possible that these things have not finally been settled by the Chancellor as I write this.
The majority of investors have money in assets that can be caught for CGT such as unit trusts, OEICs and direct shareholdings. We cannot recommend taking drastic action, such as the wholesale selling of portfolios, because we do not know what the new rules will be and any action you take blindly, as it were, could make the situation worse. Married investors might, however, want to make sure that investment portfolios are fairly equally divided between them by possibly transferring some assets into their spouse’s name. Such transfers between married couples are not deemed to be a sale so that the original cost and gain is transferred across untouched. This allows maximum use of both CGT annual exempt amounts on an eventual sale.
All Investors Should Consider This
There is, however, one thing that all investors should consider right now and that is to use up their investment ISA allowance before the Budget. We do not expect the ISA allowance to be removed, it may well be increased, but it is a way of moving money into a CGT free environment and is therefore a prudent course of action.
If you are an existing client and have money in unit trusts and OEICs on a platform such as Nucleus, Cofunds or FundsNetwork, then simply email or telephone us and we will email you a switch form to move up to £5,100 or £10,200 (if you do not also wish to use Cash ISAs this year) into the appropriate ISA account. Please remember that these amounts are per individual so that a couple can move a total of up to £10,200 or £20,400 out of harm’s way.
If you are not an existing client or your investments are not held on a platform then it may be too late to get any switch into an ISA completed before the Budget, but we are still happy to talk through your options with you.
Please note that this information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances. If you are thinking about investing in an ISA then you should discuss the matter with a suitably qualified independent financial adviser such as ourselves.
If you would like to receive advice about switching some of your investments into an ISA or investing directly into an ISA, please ask your usual Arch adviser, telephone 01483 204600 or email enquiries@arch-fp.co.uk.