MHA | Time for a Financial Review?

Time for a Financial Review?

Posted on: January 26th 2023 · read

In the Autumn statement, released in November 2022, the landscape for tax-efficient investing changed.

For those who are unaware, the annual dividend allowance and annual capital gains tax (CGT) exemptions are set to halve for the 2023/24 tax year and halve once more in the 2024/25 tax year.

This will reduce the tax-free dividend allowance from £2,000 to £500 from April 2024 and the CGT exemption from £12,300 to £3,000 from April 2024.

These changes will likely result in investors paying more tax and should drag more into the self-assessment regime. Therefore, now is as good a time as any, to analyse whether the structure of your investment portfolio remains fit for purpose, as re-structuring could bear fruit. 

Most DIY investment platforms only offer ISA and pension tax wrappers to investors. These tax wrappers benefit from tax-efficient growth, but individuals are restricted to annual limits on the amount they can contribute.

With the tightening of the tax net on investments that are held directly (not within a tax wrapper), thought should go into whether the use of an investment bond could be beneficial, as it could provide more control from a tax perspective, flexibility, and hedge against future changes in legislation.

Investment bonds allow for the deferral of tax on any growth. Individuals can control when a tax charge arises, and fit this into their financial plan, in a tax year which is more convenient, reducing the tax burden. There is the ability to access smaller amounts from investment bonds annually without any immediate tax liability, 5% of the initial premium each policy year until the original premium has been withdrawn. This allowance is cumulative, so any unused part of the 5% limit can be carried forward to future years. Changes can be made to the underlying investments without triggering tax, like an ISA or pension, and the bond itself can potentially be written into trust should Inheritance tax planning become more of a priority.

Investment bonds can be held onshore or offshore, in other jurisdictions, like Dublin or the Isle of Man. The tax treatment differs between onshore and offshore investment bonds and is complex, so should be explored further with a qualified professional to understand whether it is suitable for your individual circumstances.

How can MHA help?

The above hopefully highlights the benefit of engaging with a financial planner, as although you may have a financial plan in place, legislation or individual circumstances are always subject to change.

Should the changing tax environment be on your radar, and you wish to develop or review your financial circumstances, then please do not hesitate to get in contact via the form below.

This article should not be construed as advice or a personalised recommendation. The most suitable solution for you will depend on your own personal circumstances.

No action should be taken without seeking further formal advice.

MHA Moore and Smalley is regulated by the Financial Conduct Authority, FCA registration number 448716.

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