It’s that ISA time of year again
Last week I had a client come in to my office with over half a million pounds worth of share certificates that had been accumulated for over 30 years. What a logistical mess. It took my team over 7 hours to work through all of the papers and this is only the first part of the job done.
Now the fun bit starts where we have to contact the various Share Registrars and raise indemnities to sort out missing or invalid certificates. I don’t know if you have ever tried calling a Share Registrar but you are typically on hold for around 10-15 minutes and because it’s a premium rate telephone number it can get expensive. The hold music is pretty bad too but that’s another story.
However, it should really come as no surprise to me. This time of season is especially worse because we are fast approaching the end of the tax year. It’s the time that everybody seems to have awoken from their long winter hibernation. To describe it as a frenzy is not an understatement. It really is with everybody scrambling to get their paperwork in order to avoid paying HMRC huge tax bills.
That’s why I am writing this article to share how a bit of forward planning can save you lots of time and money. Here are a few tips to consider.
- £20,000 ISA Allowance – if you don’t use your allowance you lose it and so you should always make sure that you take advantage of it if you can. Even if you don’t have the cash to put into an ISA, you should be considering moving shares that you hold in certificated or non-ISA form into your ISA.
- The ‘dividend allowance’ falls from £5,000 to £2,000 from April 2018 which means that if you are holding income paying shares outside of a tax wrapper you could get stung. The trick is put money into a SIPP and stock ISA. Or if you want to be really clever you can change income into capital! – watch today’s short video I show you exactly how to do this (link below).
- Don’t hold share certificates. Part of the problem of poor tax planning is not knowing which shares are doing well or badly and how much profit you are making. That’s why to hold your investments in a nominee (electronic) form (which is how 99% of the UK population prefers to hold their shares) makes sense. And don’t worry about attending AGMs, you can still do so just by letting your broker know.
- Change of strategy – with income being taxed much more aggressively than capital growth then it pays to move out of income paying stocks and into capital growth stocks. However, many investors don’t like the idea of this because they believe that capital growth stocks are higher risk than income. Watch today’s video of how to get around this.
- Lifetime ISA (LISA) – this is a great product which I’m surprised so few people know about. If you are aged between 18 and 40 you can invest up to £4,000 into a LISA and the Government will give you £1,000 for free which is a whopping 25%. There are some terms attached but nothing insurmountable.
- Cash ISA – there is still some confusion about cash ISAs so allow me to dispel them. Since 2014 Cash ISAs and Stocks and Shares ISAs are one and the same thing. That means that you can shift from cash to share investments and vice-versa relatively easily. With cash ISAs paying less than inflation it does make me wonder why investors may want to hold cash ISAs at all, but that’s another article for another time.
- SIPP is a great way to shield from IHT. If you have a normal pension you should consider getting tax advice on whether it makes sense to convert it into a SIPP. All pensions are exempt from Inheritance Tax but SIPPs give you greater control. If you are working then making pension contributions and earning higher rate tax relief on the way in and only paying basic rate tax on your drawdowns is one way that many savvy investors are really utilising this tax vehicle. However, like all products that prove popular with the public, don’t be surprised if the Government takes it away or changes the tax breaks before too long. (The Government has already reduced the life time allowance on more than one occasion so they could do it again.
- SIPP Lifetime Allowance – one big problem that investors sometimes face is being TOO successful. If they invest wisely and their SIPP value exceeds the lifetime allowance which currently stands at £1m, then they will get charged a whopping 55% on any withdrawals. Well the good news there is something that you can do about that. If you want to know more call our offices.
Just so that you know I am not a tax advisor and I’m not giving tax advice. However, I do work very closely with a number of tax specialists who help my clients to achieve their objectives. Over the years I have picked up the tricks of the trade and found it to be easier than you might normally imagine. Understanding basic tax is essential to being successful in the long term and whilst it’s not a topic of great excitement it’s necessary so don’t hold it off until next year.