10 Top Tax Tips to Save Money in 2010
City wealth manager Saunderson House has today unveiled 10 top tax tips to help investors battle against both economic uncertainty and a less predictable tax system.
CEO Nick Fletcher also outlined seven financial planning points to help investors tackle the many and varied challenges ahead in 2010.
Saunderson House provides personal financial and investment advice to top City lawyers and accountants, entrepreneurs, industrialists, family estates and charities. The firm charges on a conflict-free hourly-rate fee basis and has been rebating trail commission since 1994.
Mr Fletcher explained:
“With the introduction of the 50% tax rate only a short time away, those with taxable income exceeding £150,000 should be considering several actions as should those with capital gains. These should, however, only be considered in the context of an appropriate asset allocation strategy from a risk point of view and ‘the tax tail must not wag the investment dog’.”
“Our investment team has put together seven financial planning points, including ten top tax tips, which should help you become more productive with your capital.”
While we have less control over personal income, we have much more control over personal expenditure. A pound spent today represents multiple pounds taken out of the future (due to the theory of compounding) therefore cutting out any unnecessary spending can be very productive. A measure of focus on your outgoings, including investment advice and management charges, is worthwhile.
Protecting against inflation is critical to maintaining the long term purchasing power of your hard earned capital. Directly held index-linked gilts are not subject to capital gains tax therefore a 5% gross gain is a 5% net gain for a low risk investment (this excludes the coupon, which is taxable).
For those wanting to increase tax efficiency in the short to medium term, where applicable, it would be sensible to consider the following top 10 tax tips:
- Ttransfer non-tax sheltered income producing assets to lower rate taxed spouses/civil partners.
- Hold higher yielding investments in tax sheltered wrappers such as ISAs or existing pension funds.
- Position non-tax sheltered investments for capital growth.
- Utilise remaining pension contribution allowances in 2009/10 and 2010/11 where higher rate income tax relief is available.
- Utilise capital gains tax allowances, worth £10,100 per person, transferring assets between spouse/civil partner as necessary.
- Crystallise gains while the tax rate remains at 18%,
- Utilise ISA allowances – though relatively small, these do add up over time and can be very powerful if significant gains are made,
- Invest in national savings and investments savings certificates,
- Encash single premium investment bonds with inherent gains before April 6, 2010, possibly at a lower rate than in subsequent years, as gains are taxed as income and
- Use single premium investment bonds, subject to an appropriate level of charges, to defer investment income to subsequent tax years, if taxable income may then fall below £150,000.
For longer term tax planning (though we don’t, of course, know when we are going to die and hence do not know how “long term” our planning will in fact turn out to be), it is worth considering how much capital you can gift. The three main questions here are: to whom to gift, how much and when. These are strategically important questions to answer prior to deciding what is the most appropriate method of implementation.
Proper risk assessment is essential, if you are to avoid disappointment with your investments, by examining your asset allocation position relative to your needs. One of the key longer term questions for most people is "How much money do I need before I become financially independent?" Regardless of the answer, it may be easier to achieve if unnecessary investment risks, relative to the potential rewards, are avoided.
Where there is mortgage debt, all other things being equal, it is normally preferable to repay it. This is because gross interest payments are made out of net income therefore a 5% interest rate would require a 10% gross investment return from an alternative investment to break even with the efficacy of repayment. The risk of being invested in assets that could produce this type of return is likely to be high and the likelihood of losses is greater. It is therefore generally preferable and efficient to repay debt.
Liquidity is something that is often forgotten when investing – as many who have invested in hedge funds have found to their cost. If and when cash is needed, it can often be expensive to release funds. It is for this reason that many illiquid products should be avoided.
Mr Fletcher said receiving advice on a conflict-free basis, as offered by a law firm to its clients, is essential for proper management of your assets.
He concluded that
“In the financial services industry there remains too much commission-driven product selling. In this respect, using an adviser who charges you on an hourly rate fee basis (rather than on a commission basis) makes a great deal of sense.”