Month: October 2023

The latest release from HMRC shows it collected a record £16.7 billion in 2021/22 through Capital Gains Tax (CGT) – a 15% increase on the previous tax year. Cuts to a tax exemption could mean CGT receipts might climb even further.

CGT is a type of tax you pay when you sell or dispose of certain assets. It may include property that isn’t your main home, some investments that are held outside of an ISA, or personal possessions that are worth more than £6,000. 

Previously, the annual exempt amount – the threshold up to which you can generate profits before CGT is due – was £12,300. However, the exemption fell to £6,000 in 2023/24 and will be just £3,000 in 2024/25.  

So, while the value of your assets may rise, the amount of profit you can make before CGT is due is falling. It could mean more individuals face a CGT bill or that your liability may be higher than you expect. 

Yet, some steps might help you manage your CGT bill. 

5 useful options that could reduce your Capital Gains Tax bill 

1. Use your annual exempt amount

Keeping your annual exempt amount in mind when planning how to dispose of assets could be useful. 

For example, if you plan to sell two assets and the profits would exceed the CGT threshold, delaying the sale of one until a new tax year when your annual exempt amount resets could reduce your bill.

If you’re married or in a civil partnership, you can also transfer assets to your partner without being liable for CGT. As a result, transferring assets to your partner could allow you to use both of your annual exempt amounts. 

2. Consider tax-efficient wrappers and allowances 

There are ways to hold assets tax-efficiently, which could mean you avoid CGT or potentially reduce your bill.

If you’re investing, an ISA could be one such option. Investments held in an ISA aren’t liable for CGT when you sell them or Income Tax when you withdraw your money.  

A pension may be another option if you’re investing for the long term. A pension is a tax-efficient way to invest. However, you may need to pay Income Tax when you withdraw money from your pension if your total income exceeds the Personal Allowance. 

There may be other allowances and tax-efficient wrappers that are suitable for you too. 

3. Manage your taxable income

The CGT rate depends on your other taxable income. If you’re not sure what rate of CGT you could pay please contact us. In 2023/24:

• The standard CGT rate is 10% (18% on property that isn’t your main residence)
• The higher CGT rate is 20% (28% on property that isn’t your main residence).

So, if you’re able to reduce your income from other sources, you could potentially halve the rate of CGT you pay. 

Whether this is an option will depend on your income and circumstances. For example, if you’re a retiree drawing a flexible income from your pension, you may choose to pause or lower your withdrawals to avoid exceeding thresholds. Or, if you’re an employee, you may increase your pension contributions to reduce your taxable income. 

If you want to understand the possible effects of reducing your taxable income, please get in touch. 

4. Offset losses against gains

No one wants to make a loss when selling assets, but it could reduce your tax liability. In some cases, it is possible to offset losses against gains to reduce CGT.

For instance, if you sold investments at a loss, you could use this to your benefit from a tax perspective as CGT is charged on your net capital gains during a tax year. 

You may also be able to carry forward losses to future tax years. Keeping good records may mean you’re able to use losses against gains in the future. 

5. Make Capital Gains Tax part of your long-term strategy

You may want to consider CGT when setting out and reviewing your long-term plan. Understanding when you plan to dispose of certain assets could help you identify ways to reduce the amount of tax you pay.

Contact us if you have questions about Capital Gains Tax

If you’d like to better understand how much CGT you could be liable for or want to make it part of your long-term strategy, please contact us. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

205 years after it was published, the novel Frankenstein has inspired countless horror books, films, and more. The approach the scientist takes in the story to create a sapient creature might have more in common with effective financial planning than you think.

English author Mary Shelley published Frankenstein in 1818 after being inspired by historical tales of alchemists and the occult while travelling through Europe. 

The novel tells the story of young scientist Victor Frankenstein and his ambitions to create life. He assembles old body parts, strange chemicals and electricity from a lightning storm to bring his Creature to life. 

Frankenstein is considered, by some, to be the first true science-fiction story. It also has a couple of important lessons when creating a financial plan. 

Lesson 1: A bespoke approach could help you reach your goals 

Frankenstein’s experiment might not end well, but he does achieve his aim – creating an articulate life. 

He can’t simply use an existing body to create his Creature. So, Frankenstein must gather different parts that suit his needs. Taking a similar approach when you’re building a long-term financial plan could work too. 

There’s no one-size-fits-all financial plan. Your goals and finances will affect what’s right for you. The financial plans of two seemingly similar people may be very different.  

So, like Frankenstein, understanding which “parts” you need to create a financial plan could help you get more out of your assets and may mean you’re more likely to reach your goal.

Often, a financial plan involves bringing together lots of different areas that need to complement each other. If you aim to create long-term financial security, you might consider areas like:

• Adding to a savings account to create a safety net
• Contributing to a pension to create a retirement income
• Investing outside of a pension to provide flexibility
• Paying off your mortgage so your expenses fall later in life
• Taking out financial protection that could prevent shocks from derailing your plans.

Creating a plan that’s tailored to you may seem complex, as you’ll need to balance multiple factors. Yet, a “Frankenstein” approach could help you take steps that are right for you and discard those that aren’t appropriate. 

As a financial planner, we can work with you to create a bespoke financial plan that’s tailored to your needs. We’ll help you understand how different aspects of your plan can work together to support your goals, like the electricity that brings Frankenstein’s creation to life. 

Lesson 2: Keep track of your “creation”

When Frankenstein is selecting the features for the Creature, he purposely chooses beautiful ones. Yet, when the Creature is animated the result is “hideous”, and so, repulsed by his own work, the scientist flees. 

When Frankenstein returns, the Creature is gone, and it leads to a series of events that cause grief and guilt. 

Fortunately, you don’t need to worry about an eight-foot monster if you leave your financial plan unattended. But things could go awry if you don’t manage it.

Regular financial reviews could help ensure your plan continues to reflect your goals and that you remain on track.

Over time your wishes or circumstances may change. In some cases, making alterations to your financial plan could make sense. Factors outside of your control, such as a period of high inflation or government changes to tax allowances, might also affect how suitable your financial plan is. 

Financial reviews may highlight potential risks and opportunities. So, they may be an important part of getting the most out of your money over the long term. 

We can help you create a tailored financial plan

As financial planners, we can help you create a bespoke financial plan that suits your circumstances and goals. We’ll bring together different aspects of financial planning to create a holistic plan that’s tailored to you. 

If you’d like to talk to one of our team, please get in touch. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Creating a financial plan is just the first step to reaching your goals. While you may have carefully set out what you need to do, financial reviews are still essential.  

Often, it’s advised that you review your financial plan once a year or following major life events. Over the next few months, you can read about why reviews are a part of your financial plan and the times when you might want to make changes. 

Here are three reasons why you shouldn’t skip reviews.  

1. You can use your review to check you’re on track to meet your goals

Even the best-laid plans can go awry. 

A whole host of outside factors could affect the outcome of your financial plan, from interest rates to financial shocks. Financial reviews can provide a snapshot of your finances and help you understand if everything is still on track.

A review is a chance to look at things like how your investments have performed and what the projected long-term returns mean for your future. 

Financial reviews mean you could identify potential obstacles in your plan sooner than you might if you didn’t carry one out. It may give you a chance to respond to possible risks and limit the effect they’ll have. 

Going through your plan regularly may also help you feel more in control and boost your wellbeing overall. Knowing that a professional is handling your finances with your aspirations in mind could help you focus on other areas of your life. 

2. You can update your financial planner about changes in your life

Your circumstances and goals should be a central part of your financial plan. What you want to achieve with your money may affect which decisions are right for you.

While you’ll often set out long-term goals when you first make a financial plan, things can change. 

As part of your financial review, we’ll not only discuss how your assets have performed but whether your plan is still suitable. So, talking about your aspirations is essential.

Perhaps since your last review you’ve decided you want to: 

• Receive a higher income in retirement because your lifestyle or financial commitments have changed 
• Take time away from work to raise children or care for a relative 
• Retire earlier 
• Gift a lump sum to your child to help them reach their goals
• Start your own business. 

New goals might also affect your long-term finances.

For instance, if you want to take time away from work, you may pause pension contributions, which could affect your retirement income. By making these decisions part of your financial plan, you can understand both the short- and long-term effects and how you could keep other goals on track. 

3. Reviews provide a great opportunity to ask questions or address concerns 

Your financial reviews are the perfect time to ask any questions or bring concerns you might have to your financial planner. 

Perhaps a period of investment volatility means you’re worried about how market ups and downs could affect your income in the future? Or maybe a news story about retirees running out of money has made you worried? 

Feeling anxious about your finances could cause unnecessary stress or even lead to you making decisions that aren’t right for you. So, using your review to talk to your financial planner about what’s on your mind could help you stay on track and feel comfortable when handling your finances. 

Of course, if you have any questions or concerns, you don’t need to wait until your review to bring them up. You can contact us to speak to one of our team when you need to. 

Do you have questions about your financial plan or review?

Whether you’d like our support in creating a financial plan that suits you, or you have questions about your review, you can contact us.

Our goal is to help you have confidence in your finances and make the most of your money in a way that aligns with your aspirations. 

Next month, read our blog to discover two key reasons why you might want to make changes to your financial plan following a review. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.