Pre-Budget tax planning: what are our experts doing?

The new Chancellor will deliver her first Budget on 30 October. Speculation is rife as to what changes might be announced. 

Changes to IHT relief, capital gains tax rates, taxes on investment income, pensions tax relief and the tax-free allowance are all rumoured to be on the cards.

Whether and to what extent that’s just baseless speculation will become apparent on 30 October. 

What we do know is that the government has referred extensively to a “black hole” in the country’s finances, that things would have to get worse before they get better and that the Budget will be “painful”. The Prime Minister also stressed that those with the broadest shoulders would have to bear the biggest burden.

So what could investors do in the run-up to the Budget? Just wait and see? We’ve asked three of our investment experts what they are doing with their own finances. 

Their answers reflect their views, based on their own circumstances. They should not be seen as financial advice or a personal recommendation to invest. You should form your own view and seek professional advice if unsure. Tax rules can change and benefits depend on circumstances. 

Important: The information on this website is for experienced investors. These investments are for the long term: pensions for instance can’t be accessed until age 55 (57 from 2028). They are high risk and can fall as well as rise in value: you could lose all the money you invest.

Alex Davies – CEO

Alex Davies, CEO of Wealth Club

Over time I have built a significant self-select portfolio. Earlier this year, I sold many of the investments I was less keen on and transferred the funds to the Wealth Club Portfolio Service.

The main reason was I no longer wanted the hassle of managing my own portfolio. But it also made sense from a tax perspective. I’d known I wanted to sell those investments for some time and I considered it better for me to take a 20% Capital Gains Tax (CGT) hit now. It is painful, but I didn’t want to take the risk of delaying and potentially having to pay much more. 

I have done my full ISA – and so has my wife – and put as much as I am allowed to invest tax efficiently in my pension. 

Aside from that, I have invested in EIS and SEIS, a combination of re-investing exit proceeds (I’ve had some good exits this year) and investing new money.

I have invested both in single-company EIS opportunities and SEIS funds. All these investments offer the potential for good returns and income tax relief but with SEIS I can also eliminate some of the CGT liability from selling my funds and shares, which has been very attractive.

Lastly, I have sold some of my earlier VCT investments after the five-year minimum holding period was up and reinvested in new VCTs, getting the initial tax relief and invested new money in VCTs as well.

Charlie Huggins – Quality Shares Portfolio

Charlie Huggins, Manager, Quality Shares Portfolio

The first port of call for me is always an ISA. This is because ISAs provide maximum flexibility: I can withdraw my money if I need, I have wide investment options and my money can compound free of UK income and capital gains tax. 

The £20,000 annual ISA allowance is generous. This year, I invested the full £20,000. My wife did the same and so did my parents. They are both retired and have relatively little in the way of assets outside of tax wrappers. However, with a significant chance the rules could be changed, I think even they could fall into the taxman’s clutches. For this reason, both made it a priority this year to maximise their ISA allowances.

Pensions are not as flexible as ISAs and the rules can always change. So, for me they are a second port of call. 

This year I put as much as I could possibly afford into my pension. The reason is simple. The pension tax breaks are currently very generous and if that changes I doubt it will be for the better. I don’t see there is anything to be gained by waiting to make contributions, and potentially plenty to lose.

Jonathan Moyes – Wealth Club Portfolio Service

Jonathan Moyes, Manager, Wealth Club Portfolio Service

This year, adding as much as possible to my pension has been my priority. There is no other investment I can think of that offers the same combination of long-term potential returns and immediate rewards, in the form of tax relief. 

I have no idea if the rumours of impending cuts to tax relief will materialise. But that’s almost irrelevant. Put bluntly, if the Budget brings cuts to pension tax relief, I’ll pat myself on the back because I have made the most of the tax breaks whilst they were available. If nothing changes, I’ll still pat myself on the back. 

In addition, I have done my ISA for this year and made some small EIS investments. It’s the same principle: making sure my money is working for me, whilst also securing some tax breaks. 

How do the tax reliefs compare? 

Below we give a concise comparison of the tax reliefs available under current rules. This is intended to be just for quick reference on a complex topic: the value of tax benefits depends on your circumstances and all the types of investment listed below have rules and restrictions, from eligibility to annual allowances and minimum holding periods. Please make sure you fully understand these, as well as the risks involved before investing. Please seek advice if unsure. You should always invest based on the merit of the investment, not the tax advantages alone. 

  ISA Pension VCTs EIS SEIS
Income tax relief no up to 45% up to 30% up to 30% up to 50%
Capital gains tax relief no no no deferral up to 50%
Tax-free UK dividends yes yes yes no no
Tax-free growth yes yes yes yes yes
Inheritance tax relief no n/a no yes yes
Loss relief no no no yes yes

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

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