Structuring wealth to reduce tax

Where tax is payable on investment returns, the real rate of return that the investor will ultimately receive will be less, and making best use of available allowances and tax wrappers will enable investors to maximise their returns and is a critical part of a robust financial plan.

Investors will often look to take stock and review their savings and investment strategy in the new year and with a Budget planned for 3 March 2021, many will be looking to their portfolios now to understand how they are positioned.

The impact of the coronavirus has seen a sharp increase in the UK national debt which has now reached in excess of 100% of gross domestic product (GDP), a level not seen since the 1960s. The cancelled Autumn Statement has bought the Chancellor’s Spring Budget into sharp focus, with many predicting tax changes in a range of areas. Indeed, the Chancellor has already stated that there is no ‘easy cost-free answer’ and that the Government has a duty to leave the public finances strong. Many have taken this as a sign of future tax increases, meaning there is a diminishing window of opportunity to review these ahead of any potential changes.

While most of us aim to structure our wealth tax efficiently to some degree, whether that be investing into an ISA or a pension, it is important to understand all of the various tax allowances available to an individual, how they interact with one another and how they can be optimised to reduce the drag of taxation on investment returns as part of a sensible long term financial plan.

A well-diversified approach to investment structuring should give an investor comfort in knowing that regardless of changes made by this, or any future Chancellor, that they will be well positioned should future tax rises materialise.

A considered and well thought out financial plan will likely take account of a range of areas including

• Maximising annual allowances such as the personal allowance for Income Tax and the Capital Gains Tax (CGT) annual exemption
• Considering distributing investments across a couple to take advantage of more than one set of allowances and tax rates, potentially utilising spousal exemptions
• Ensuring that tax advantaged savings vehicles such as pensions and ISAs are maximised with unused pension allowances from previous tax years taken up where possible
• Diversifying into other investment wrappers such as Offshore Bonds which can allow for long term tax deferral and other planning opportunities
• Exploring other tax advantaged investment opportunities such and Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs)

Understanding what tax allowances are available and how best to utilise any existing tax wrappers and structures are the foundations of a well thought-out and resilient financial plan. The way in which these dovetail with an individual’s financial objectives is key to achieving long-term financial goals. The rules around areas such as pensions can be complex and investors are well advised to seek professional guidance before taking any action.

Contact your Wealth Manager if you would like to arrange a meeting with a Wealth Planner to discuss your options.

Your Wealth Planner can help you understand the effect of tax on your wealth and offer tax-efficient wrappers for your investments. They’ll be able to guide you towards making the right decision for your financial planning needs. Your planner can't offer tax advice – you should seek that independently. Please bear in mind that tax rules can change in future and their effects on you will depend on your individual circumstances.

This article does not constitute personal financial, tax or legal advice. Each person’s circumstances are different so if you are unsure about investing, you should seek advice from a regulated adviser.

Things to consider

The value of investments can fall as well as rise. You may get back less than what you originally invested.