February 5, 2024
Investment Markets & The Tax Year End
In 2023, investment markets faced challenges due to factors like the Ukraine conflict, Middle East tensions, high inflation, and resulting high interest rates, impacting spending capacity.
The UK has a recent legacy of some unique circumstances, including Brexit; multiple prime ministers; a shortage of labour and underinvestment. However, there are clear signs of improving sentiment. Western economies did better than expected in 2023 and inflation is starting to come under control, with interest rates expected to reduce as evidence of some “green shoots of recovery”.
Volatility is unsettling, but experienced investors remain active, buying in the dips and focusing on longer-term outcomes. So, for focused long-term investors who are seeking to outperform deposit holdings, maintain investment buying power and seek to add value to capital, a range of quality investments constructed within a portfolio should be sought. These should include products that provide tax relief and investment growth opportunities.
With the end of the tax year fast approaching, now is a good time to ensure that you are utilising your tax allowances. In the first instance, this means your annual Individual Savings Account (ISA) and Pension contribution allowances
The UK has a recent legacy of some unique circumstances, including Brexit; multiple prime ministers; a shortage of labour and underinvestment. However, there are clear signs of improving sentiment. Western economies did better than expected in 2023 and inflation is starting to come under control, with interest rates expected to reduce as evidence of some “green shoots of recovery”.
Volatility is unsettling, but experienced investors remain active, buying in the dips and focusing on longer-term outcomes. So, for focused long-term investors who are seeking to outperform deposit holdings, maintain investment buying power and seek to add value to capital, a range of quality investments constructed within a portfolio should be sought. These should include products that provide tax relief and investment growth opportunities.
With the end of the tax year fast approaching, now is a good time to ensure that you are utilising your tax allowances. In the first instance, this means your annual Individual Savings Account (ISA) and Pension contribution allowances
Individual Savings Accounts (ISAs)
You can invest up to £20,000 each tax year into a cash and / or a stocks and shares ISA and will receive any interest or capital gains tax free.
Pensions
At the 2023 Spring Budget, the annual Pension contribution allowance was increased from £40,000 to £60,000, giving individuals scope to benefit from additional tax relief and to enhance retirement savings. There are additional tax benefits of making personal pension contributions, which are:
- Tax relief on contributions – all contributions, up to the annual limits, attract income tax relief. This means that currently, a basic rate taxpayer will pay for only 80% of their pension contributions and a higher rate taxpayer will pay for only 60% of their contributions.
- Tax free growth – no capital gains tax applies to pension fund investments.
- Lifetime tax allowance removed on withdrawals – at the 2023 Spring Budget, the lifetime tax allowance (LTA) was removed and will be abolished entirely from April 2024. This means that pension withdrawals will not be subject to additional high taxes, which was previously the case.
- Inheritance tax exemption – Pension funds sit outside of inheritance tax calculations and can be passed to spouses, children or grandchildren as a legacy asset.
If you have fully utilised your ISA and Pension allowances then, there are other available tax-efficient investment solutions for using surplus cash and reducing tax bills.
Tax Efficient Investments
Two of these solutions are Venture Capital Trusts (VCTs) and The Enterprise Investment Scheme (EIS). Both are HMRC-endorsed and are designed to reduce tax bills, whilst stimulating the economy by investing in early-stage, growth orientated UK companies. These products and solutions put UK investors in a particularly fortunate position and can make a compelling addition to a modern, balanced risk-managed portfolio.
Venture Capital Trusts (VCTs)
A Venture Capital Trust or VCT is a publicly listed investment company run by a fund manager and quoted on the London Stock Exchange. A VCT investment is designed to encourage individuals to invest indirectly in a fund with a range of young, innovative, unquoted, and therefore higher risk trading companies, and to make money through supporting their growth.
The government is keen for experienced investors to invest in the types of companies supported by VCTs, because they create jobs and support economic growth. To help compensate for the higher level of risk involved, generous tax benefits are offered.
The government is keen for experienced investors to invest in the types of companies supported by VCTs, because they create jobs and support economic growth. To help compensate for the higher level of risk involved, generous tax benefits are offered.
EIS Enterprise Investment Scheme (EIS)
The EIS Enterprise Investment Scheme (EIS) is a scheme introduced by the government in 1994 to help small companies to raise funds and grow. A private investor investing in an EIS-qualifying company can receive very substantial tax breaks.
EIS-qualifying companies vary significantly, across a wide range of sectors and industries, but young and innovative businesses are a priority within the scheme. Those companies that qualify need to carry on a business with a view to making a profit and there are further restrictions on the age and size of a company. Despite these restrictions, there remains huge scope for investors. We offer investments in the scheme through EIS funds. Again, to compensate for the higher level of risk involved, the government offers generous tax benefits.
VCTs & EISs are higher risk investments and are only suitable for investors who understand the risks involved.
EIS-qualifying companies vary significantly, across a wide range of sectors and industries, but young and innovative businesses are a priority within the scheme. Those companies that qualify need to carry on a business with a view to making a profit and there are further restrictions on the age and size of a company. Despite these restrictions, there remains huge scope for investors. We offer investments in the scheme through EIS funds. Again, to compensate for the higher level of risk involved, the government offers generous tax benefits.
VCTs & EISs are higher risk investments and are only suitable for investors who understand the risks involved.
Get In Touch Today
At Best Advice Wealth Management, we have a strong track record of helping our clients navigate through challenging market conditions and achieving higher than benchmark returns. If you would like to learn more and start the New Year with a fresh approach, please get in touch.