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Your financial future with Brexit

What does Brexit mean for your personal finances?

25 October 2018

4.5 minute read

Toby Cross, Portfolio Management Specialist, talks to Anthony Ward, Head of Distribution for Barclays Wealth Planning, about what investors can do to protect their financial plans.

This article addresses UK tax concerns that may not be relevant to non-UK investors.

Toby: When clients are reviewing their financial plans with a Wealth Planner, are they worried about Brexit and the UK political landscape?

Anthony: We have seen a trend amongst clients who are increasingly interested in discussing how Brexit and UK politics could affect their personal finances. As part of getting to know our clients we want to get their views on topics such as these so we can put in place financial plans for them which are aligned to their personal objectives and priorities.

Toby: Do you think tax rises in the UK are inevitable?

Anthony: Government policy on taxation clearly states taxes will rise and this is echoed by the International Monetary Fund (IMF) who has also said that UK taxes will need to rise for the UK to balance the government finances. Therefore, higher taxes do look likely.

Toby: Which taxes are likely to rise?

Anthony: Given the complicated taxation system we have in the UK it’s difficult to predict which taxes could rise. In 2016, the government significantly reduced Capital Gains Tax rates for investments other than property from 28% and 18% for higher rate and basic rate taxpayers respectively to 20% and 10%, and they could simply increase these rates back to similar or higher levels.

Income tax could be increased but given that in 2017 the government said they would not increase this for higher rate taxpayers this would be difficult unless it was targeted at additional rate taxpayers who currently pay income tax at 45%. This could, for example, be increased to 50% as it has been historically.

Alternatively, the government could potentially increase overall tax paid by reducing the individual tax allowances.

Toby: What can an investor do to prepare for potential tax rises?

Anthony: Clients should consider using their tax allowances on a regular basis. For example, the annual Individual Savings Account (ISA) allowance is £20,000 per annum. Returns on money invested in an ISA are free from income tax and capital gains tax. Therefore, using an annual ISA allowance each year would allow an investor to accumulate a portfolio free from taxation so they benefit from the gross returns each year.

In addition, individuals can potentially contribute up to £40,000 per annum to pensions and get tax relief at their highest marginal rate. For example, a higher rate taxpayer can get 40% tax relief assuming they have paid sufficient tax in the same tax year. However, this investment is locked in until the minimum retirement age which is currently 55 (and rising), and is then partly subject to tax. Those with earnings over £110,000 could have their pension allowance reduced so advice should be sought. Where individuals have unused pension allowances from previous years they should consider taking advice and carrying them forward and making a contribution now if appropriate.

Toby: Do any other investments offer tax relief?

Anthony: The government offers a number of tax incentives to encourage investment into smaller companies. Some clients might wish to consider investing into these small companies through Enterprise Investment Schemes (EISs) and/or Venture Capital Trusts (VCTs). There’s 30% income tax relief on subscriptions to new EIS or VCT shares, and gains can also be tax free subject to the investments being held for the minimum holding period of three years for EIS investments and five years for VCT investments.

VCTs also provide tax free dividends. The annual investment allowance that qualifies for tax relief is £2 million for EISs and £200,000 for VCTs. However, these are high risk investments and advice should be taken before investing.

Toby: What are the key steps for a client to focus on?

Anthony: Clients should take this opportunity to consider why they are investing. Our Wealth Planners can help clients establish what their motivations for investing are and put in place a plan to help them achieve their individual goals. Once the client’s objectives are clear the best financial plans put clients in the position to use their various allowances annually and use a variety of different investments and tax wrappers to help diversify their overall strategy so they are not highly exposed to any one area of the UK taxation system.

Taking tax into consideration throughout lifetime is important but it is also imperative to consider what tax will be due upon death. For clients who are concerned about how much of their wealth will go to HMRC and not their beneficiaries, advice should be taken on how to reduce the impact of inheritance tax. The sooner estate planning advice is received the more chance a client has for it to be effective.

Tax rules and legislation can change and the benefits and drawbacks of a particular tax treatment will vary with individual circumstances. We recommend that you take professional advice where required. You have sole responsibility for the management of your tax, financial and legal affairs, including making any applicable filings and payments, and complying with any applicable laws and regulations.

“Our Wealth Planners can help clients establish what their motivations for investing are and put in place a plan to help them achieve their individual goals”

Nothing contained in this article should be construed as constituting legal, financial or tax advice. Tax rules and legislation can change, and the benefits and drawbacks of a particular tax treatment will vary with individual circumstances.

We recommend that you take professional advice where required. You have sole responsibility for the management of your tax, financial and legal affairs, including making any applicable filings and payments, and complying with any applicable laws and regulations.

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