Are your savings and investments prepared for the reduced allowances?

This tax year brought in a reduction to some existing allowances meaning that the tax paid on income, savings and investments increased. Even for the tax rates that were frozen, in real terms when inflation is considered, this amounted to an increase in the tax payable by you.

Not only was the personal allowance frozen for all (1) and reduced for higher earners, there was also a reduction in the allowances on the dividends (3) paid on investments and a reduction in the Capital Gains Tax allowance (CGT).

Even worse, the dividend (3) and CGT allowances (4) will both reduce again from April!

Investment and Capital Gains Tax Considerations

With the reduction in CGT Exempt allowances there is a real risk that your assets and investments could become liable to CGT, but with careful planning this does not have to be the case.

It is now more important than ever to carefully consider how your savings and investments have performed to date and how aligned they are to each other and your future plans, in order to minimise the tax due

Whilst using ISA’s is still a valuable part of financial planning, the reduced CGT allowances now mean more care than ever is required to select the right product at the right time to ensure Capital Gains Tax is not paid unnecessarily upon an encashment, or by simply using your ISA allowances!

We’re here to help

With careful planning and making use of the tools available, no-one should have to pay more CGT than they need to, even with the reduction in allowances. 

If you would like to learn more and ensure that your future savings and investments are set up to help minimise the tax you have to pay, please get in touch now.

Sources:

1)     Income Tax rates and Personal Allowances : Current rates and allowances - GOV.UK (www.gov.uk)Income Tax rates and Personal Allowances : Previous tax years - GOV.UK (www.gov.uk)

2)     Capital Gains Tax: what you pay it on, rates and allowances: Capital Gains Tax rates - GOV.UK (www.gov.uk)

Capital Gains Tax rates and allowances - GOV.UK (www.gov.uk)

3)     Income Tax: Reducing the Dividend Allowance - GOV.UK (www.gov.uk)

4)     Reducing the annual exempt amount for Capital Gains Tax - GOV.UK (www.gov.uk)

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Tax treatment varies according to individual circumstances and is subject to change.

Stocks and Shares ISAs invest in Corporate bonds; stocks and shares and other assets that fluctuate in value.

Approver Quilter Wealth Limited, Quilter Financial Limited, Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 16 May 2023