5 NEW TAX YEAR PLANNING TIPS
Start planning at the dawn of the new tax year to make an onerous task less burdensome, writes Henrietta Grimston.
When it comes to multi-tasking, financial advisers probably have their work cut out more than most: keeping a business ticking along, remaining on top of an ever changing, increasingly challenging regulatory environment, whilst still nurturing client relationships is a tall order.
Tax issues are probably one of the most labour intensive, and dare I say, potentially least interesting aspects of financial planning. One way to manage this is to start planning at the start of a new tax year to save a last-minute rush to the 5 April deadline.
Advisers will all have taken on clients who might have hitherto managed a portfolio of stocks themselves, but this may have morphed into a very complex administration burden over the years.
Last year, an adviser introduced me to a client who had been left more than £1 million, accumulated over many years. Most of it was in a cardboard box in the form of dozens of share certificates, some dating back 30 years or more; some valid, some not. Many of the companies had changed ownership and none of the assets were inside a tax wrapper. The first task was to spread the paperwork over our biggest boardroom table trying to establish an estimated value and book costs (historic purchase price). This is worked out from dates on the share certificates and detective work through the records.
The next task was to begin selling assets and creating a professionally managed portfolio in line with the client’s needs and risk profile, established by her adviser. This inevitably involved the potential of crystallising significant gains. Some stocks you really don’t want to hold, whatever the capital gains tax (CGT) costs, but sensible rebalancing requires creating a priority disposal order over several years.
This is an extreme example, but highlights one area often overlooked by investors. Here we outline five tax planning measures that are worth thinking about at the start of a new tax year:
1. CGT ALLOWANCE
The CGT allowance is the Cinderella of tax planning. Whereas ISA wrappers come with ‘ribbons and bows’ (a strong brand, in other words), there is no equivalent for capital gains tax allowances. This is probably why we find around 80% of new clients are not taking advantage of this. Crystallising gains annually in a tax efficient way can help mitigate a future tax bill, but it requires discipline and process – something that advisers bring to their clients.
2. THE ISA DOUBLE WHAMMY
Whether by luck or design, 16 and 17 year olds currently get two ISA allowances, because they can open an adult ISA from age 16 alongside their junior ISA. That enables clients to put aside up to £24,128 in a child’s name tax free in the 2017/18 tax year or £24,260 in the 2018/19 tax year.
3. DIVIDEND ALLOWANCE – TIME TO RESTRUCTURE?
Because the dividend allowance is being reduced from 6 April to £2,000 from £5,000, some clients might benefit from restructuring their investments towards growth rather than income if investing outside of a tax wrapper.
4. INCOME TAX ALLOWANCE
Clients who are married or in a civil partnership with a spouse who earns £11,500 per year or less can transfer up to £1,150 of their personal income tax allowance to their spouse (provided they earn between £11,501 and £45,000, or £43,000 in Scotland). You can backdate the claims to 5 April 2015.
5. ISA ALLOWANCES – PASSING THE STRINGS
For couples, it makes sense to fully utilise each other’s ISA allowance, particularly where one half of the couple has more financial resources than the other, producing combined tax free savings of £40,000 this tax year and next.
Henrietta Grimston is a relationship manager at Seven Investment Management
If you use the Zurich Intermediary Platform, here are some key dates and deadlines to ensure your end of tax year arrangements for ISAs runs as smoothly as possible:
| Request for internal transfer from joint Investment Accounts to individual Cash Accounts to fund ISAs
|| Must be received by Tuesday 27th March 2018
| Request for withdrawals, within a portfolio, from Investment Account to Cash Account to fund ISA
|| Must be submitted by Tuesday 27th March 2018
| ISA Final submission deadline for 2017/18 (fully submitted and funds received)
|| Midnight Thursday 5th April 2018
| Electronic Funds must be received/visible in our bank account by close of business
|| Must be received by Midnight on Thursday 5th April 2018