Preparing for tax rises after coronavirus
In this article Anthony Ward, Head of our Wealth Planning team, considers why achieving tax diversification with your wealth could be the answer.
As we move into the next phase of coronavirus, we're beginning to see the government's approach to fixing the public finances includes increasing taxes.
The Chancellor, Rishi Sunak recently said, “Coronavirus has caused one of the largest economic shocks this country has ever faced,” and the response from the government has been a £352bn package to support lives and livelihoods. Now over one year since the beginning of the coronavirus pandemic the UK finds itself with total national debt of over £2 trillion and the attention has now turned to how will this debt be repaid.
In the spring budget, the Chancellor gave us our first glance at the future direction of travel when he said he will be “asking more of those people and businesses who can afford to contribute and protecting those who cannot”.
Of all the uncertainties caused by the coronavirus situation, industry commentators now agree tax rises seem to be beyond doubt. The question isn’t if, but more likely when, and which taxes could these be?
These unknowns might have left you wondering what this could mean for both your future and your investments. Over recent months clients have been asking our Wealth Planners ‘How should I structure my wealth to prepare for tax rises?’ and here are some principles to support this discussion.
1. Begin with the end in mind
Ask yourself these questions: What would you like to be doing with your life 10 years from now? How might this vision change in 15 or 20 years? How will your income and expenditure change over time? Who else is your wealth for (for example children and grandchildren)?
By painting a picture of your future and how you want to use your wealth you can set goals and establish how much capital you might need to achieve these goals. Our Wealth Planners can support you by helping you identify and agree what’s important to you.
2. Focus on what you can control
A few years ago nobody would have predicted we would be in this position now and the future remains uncertain. When it comes to planning for your future it’s important to expect the unexpected.
Whilst the direction of travel is tax rises, anybody who says they know what changes there will be to taxation is, at best, guessing. For example, only a few weeks ago the International Monetary Fund proposed temporary tax hikes on corporations that prospered during the pandemic or the wealthy as a means to cover the cost of the coronavirus crisis and support more disadvantaged people. The UK government might take a view that temporary tax hikes on the wealthy are required or these could be long term.
You can control how your wealth is structured now and if you're using all the allowances and exemptions available to you. You can also control if you have tax diversification with your wealth or if your tax risk is concentrated to a small number of products or structures. For example a self-invested personal pension is very tax efficient, however, it would be unwise to hold all your investable assets in any one product or structure. Instead a fundamental part of a successful financial plan is to achieve tax diversification by using various different structures thus giving you the flexibility to adapt to changes in tax policy or unknown life events.
3. Take advice
There is now a window of opportunity to take advice and bring any planning forward to ensure you have a robust financial plan and are prepared for tax rises. What will be suitable for one client might not for another and that’s why we offer every client bespoke financial advice which is tailored to them.
We have a wide range of solutions that benefit our clients by helping them reclaim tax they have paid, receive tax-free income, defer tax to a later point, where with advice, it can be paid at lower rates. We structure our client’s wealth to enhance returns by minimising the impact of tax on returns.
Our Wealth Planners can give you peace of mind about your future by providing you with recommendations tailored to your needs and they are there to support you in the future when you need advice.
Support is available
Our Wealth Planners can help you plan for the future and potentially reduce the impact tax rises could have on your personal and financial goals.
Whether you have taken advice in the past or you are doing so for the first time our Wealth Planners are available to help you understand your options.
Contact your Wealth Manager if you would like to arrange a meeting with a Wealth Planner to discuss your options.
We’re not providing you with financial, legal or tax advice, so 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.
Things to consider
The value of investments can fall as well as rise. You may get back less than what you originally invested.
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