New Year Financial Resolutions 2023 - Partners Wealth Management

The start of a new year is traditionally a time to reflect on the past and to make resolutions for the year ahead. The tax burden has reached the highest point since World War II, so it is crucial to ensure your savings and investments have utilised all the available tax planning allowances. At Partners Wealth Management, our Tax Optimisation Strategy can save our clients hundreds of thousands of pounds over many years. We frequently meet new clients who are not routinely sheltering portfolios, meaning they could have paid more tax than necessary.

7IM’s Ben Kumar offers his insights on investments here. His ‘Regime Change’ observation really brings a fresh insight on investments. As ever, in 2023 we will be maintaining the increasingly rare view that a blend of managers brings benefit and that no single investment group has the monopoly of ideas. Our investment independence enables our advisers to bring views to the table and to blend managers according to each client’s preferences and views. The dangers of all eggs in one investment basket have been exposed yet again over the last few years.

If blending investment managers is partly art, the science of reducing tax can be distilled in the following simple steps:

Pensions

Both the Annual Allowance and Lifetime Allowance are frozen until April 2026, at £40,000 and £1,073,100 respectively. These allowances have not increased with inflation and therefore those saving to the maximum extent possible with tax concessions can save less in real terms each year. Also, remember that pension carry forward rules allow you to use unused allowances from up to three prior tax years.

It is also possible to save up to £3,600 gross (£2,880 net) for each of your children/grandchildren or non-earning spouse/civil partner.

Utilise your annual Capital Gains Tax (CGT) allowance and consider realising any gains

Up until the end of the tax year, each individual can use their £12,300 CGT exemption (2022/23) to realise capital gains from investments without paying additional tax. Spouses and civil partners can transfer assets between themselves, allowing both individuals to benefit from this individual exemption. From April 2023 the annual CGT exemption will fall from £12,300 to £6,000, and then to £3,000 in April 2024.

Maximise your ISAs and JISAs

These changes to CGT, as well as changes to Dividend Tax (from April 2023, the Dividend Allowance will be cut from £2,000 to £1,000 and then fall further to £500 from April 2024), are even more reasons to consider investing up to £20,000 this tax year in a stocks and shares Individual Savings Account (ISA). It can also be valuable in the long-term to make use of the Junior ISA (JISA) allowance with a contribution £9,000 per child. Dividends received on shares within an ISA are tax free and will not impact your Dividend Allowance. Also, any profit you make when selling investments in your stocks and shares ISA is free of CGT.

Inheritance Tax

Inheritance Tax nil-rate bands are now fixed at current levels for a further two years until April 2025. The individual nil-rate band is £325,000 and the residence nil-rate band is £175,000 with taper starting at £2m.

Consider making use of your annual exemption that allows you to gift up to £3,000 per year. Remember, if you did not use this allowance last year, you can carry forward last year’s allowance to allow you to contribute up to £6,000 as gifts this year. You can also give regular gifts out of ordinary expenditure in excess of the £3,000 annual allowance.

Consider Venture Capital Trusts (VCT)/Enterprise Investment Schemes (EIS)/Seed EIS (SEIS)

These investments generate a 30% Income Tax credit by way of a tax reduction (50% for SEIS) to offset against Income Tax liabilities. However, this should be done with caution due to the high-risk nature associated with investing in small businesses. These do nonetheless represent extremely tax-efficient vehicles for those with an appetite for risk.

One of the few announcements which remained from the ‘mini-budget’ last September was the extension to the tax relief available through SEIS which is due to take effect from April 2023. The maximum investment amount will rise from £150,000 to £250,000; the annual investor limit will be doubled to £200,000 and the gross asset limit will rise to £350,000.

Move deposits and investments into your spouse’s name if they have lower earnings

Deposit interest, dividend tax and CGT are all lower for non-working or lower-income partners. But commonly, people leave deposits or portfolios in the name of a higher earner due to inertia. Review where your assets are held and challenge older generations in families too.