Category: Blog
Guide: 7 valuable behaviours for successful investing
How do you grow your wealth when you’re investing? Choosing the “right” investments is just one of the ingredients needed for success. Indeed, your mindset and behaviours could have a much larger effect on the outcomes of your investments than you might think.
Your approach to investing could influence the decisions you make when you start building your portfolio, such as how much risk you take. It could also play a role in how you respond to market movements, which may have a knock-on effect on the long-term returns of your portfolio.
So, as well as considering which investments could help you reach your goals, you might also want to review your behaviours and the impact they could have.
This useful guide explains how some behaviours, such as being patient or staying calm during market volatility, could have a positive effect on your wealth.
Download ‘7 valuable behaviours for successful investing’ now to read more about the behaviours that might lead to improved investment outcomes.
If you have any questions about your investment portfolio or how investing could fit into your wider financial plan, please contact us to arrange a meeting.
The announcement of the new UK ISA marks 25 years of tax-efficient savings
Since they were introduced in 1999, ISAs have become a finance staple for many households thanks to providing a tax-efficient way to save and invest. As ISAs turn 25, chancellor Jeremy Hunt unveiled plans to launch a new UK ISA and has previously announced changes that could provide you with more flexibility.
Read on to find out what you need to know about ISAs.
The UK ISA could increase your allowance by £5,000
The government will carry out a consultation about the introduction of the UK ISA until June 2024. So, there are currently only a few details available.
In the March 2024 Budget, the chancellor said the UK ISA would have a new £5,000 annual allowance, in addition to the existing ISA allowance, which is £20,000 in 2024/25. It will be a type of Stocks and Shares ISA that’s designed to encourage investment in UK companies.
Which assets could be held in a UK ISA or what will constitute a “UK-focused” investment hasn’t been clarified.
The UK ISA could provide a tax-efficient way to invest for those who use the current £20,000 ISA allowance each year. However, investors are likely to need to consider the effect it could have in terms of diversification. Investing heavily in the UK could lead to a portfolio that no longer suits your risk profile and isn’t as balanced.
Changes to ISA rules could help you save or invest in a way that suits your goals
Despite calls to increase the ISA allowance, it will remain at £20,000 for the 2024/25 tax year. Yet, revisions to ISA rules from 6 April 2024 could change how you use them to save and invest.
Two key adjustments mean you can:
- Open and pay into multiple ISAs of the same type during the same tax year
Under previous rules, you could only open and pay into one ISA of each type during the tax year. From 6 April 2024, this is no longer the case.
So, you could open a Cash ISA at the start of the tax year and make a deposit. If you then find a different provider offering a Cash ISA with a better interest rate later in the year, you can open another account right away, rather than having to wait for a new tax year to start.
The change means you’re in a better position to take advantage of new deals as they become available. Bear in mind that your total ISA subscription limit will apply across all ISAs you contribute to in a tax year.
- Make partial transfers between ISA providers
Previously, if you wanted to transfer money from one ISA to another in the same tax year, you had to transfer all of the funds. Now, you can make partial transfers, which could provide you with more flexibility.
Let’s say you have £20,000 invested through a Stocks and Shares ISA. You might want to transfer a portion of the money to a different Stocks and Shares ISA because it would give you access to a fund that suits a specific goal, but would also like to keep some money in the original ISA for a different purpose.
From 6 April 2024, partial transfers between ISAs are possible.
5 fantastic reasons to consider using your ISA allowance in 2024/25
With the ISA allowance resetting for the 2024/25 tax year, here are five fantastic reasons you might want to make saving or investing through them part of your financial plan.
1. Interest received on savings held in a Cash ISA isn’t liable for Income Tax
The interest you receive on cash savings held outside of a tax-efficient wrapper could be liable for Income Tax if you exceed the Personal Savings Allowance, which, in 2024/25, is:
- £1,000 for basic-rate taxpayers
- £500 for higher-rate taxpayers
- £0 for additional-rate taxpayers.
So, using an ISA for savings could reduce your overall tax bill.
2. You could reduce your Capital Gains Tax bill by investing through a Stocks and Shares ISA
An ISA could also prove tax-efficient when you’re investing as the returns your investments earn wouldn’t be liable for Capital Gains Tax (CGT). The rate of CGT depends on your other taxable income, but it can be as high as 20% (24% on residential property) in 2024/25. So, if you don’t invest through an ISA, you might face a substantial tax bill.
3. A Lifetime ISA could provide you with a government bonus
If you’re aged between 18 and 39, you could open a Lifetime ISA (LISA), which is designed to help people save a deposit for their first home.
You can add up to £4,000 to a LISA in 2024/25, and you’d receive a 25% government bonus, which might help you reach your goals sooner. You can save or invest with a LISA.
However, if you want to make a withdrawal for a purpose other than buying your first home before the age of 60, you must pay a 25% charge. This penalty means you’d lose the bonus and a portion of your own money. As a result, it is important to set out your goals and time frame when deciding if a LISA is right for you.
4. You could use a Junior ISA to save or invest for a child
A Junior ISA (JISA) could offer you a tax-efficient way to save or invest on behalf of a child. A parent or guardian can open a JISA for a child, and in the 2024/25 tax year, you can contribute up to £9,000.
Like their adult counterparts, the money held in a JISA isn’t liable for Income Tax or Capital Gains Tax.
One thing to keep in mind is that the JISA will convert into an adult ISA when the child turns 18, and they’ll be able to use the money how they wish.
5. If you don’t use your £20,000 ISA allowance, you’ll lose it
You cannot carry forward any unused ISA allowance into a new tax year. So, if you don’t use it before 6 April 2025, you’ll lose your allowance for the 2024/25 tax year. As a result, it might be worth considering your long-term financial goals and whether an ISA could play a role now.
Contact us to talk about your saving and investing goals
Please contact us if you’d like to discuss how ISAs could form part of your wider financial plan by saving or investing in a tax-efficient way.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Could you face an unexpected bill now the Capital Gains Tax allowance has halved?
The gains you can make before potentially paying Capital Gains Tax (CGT) have halved for the 2024/25 tax year. If you plan to dispose of assets, the change could affect you. Read on to find out when you could be liable for CGT and some steps you might take to manage a bill.
CGT is a tax on the profit you make when you sell certain assets that have increased in value. CGT could be due when disposing of a range of assets, including:
- Shares that aren’t held in a tax-efficient wrapper
- Property that isn’t your main home
- Personal possessions that are worth £6,000 or more, excluding your car.
The amount of profit you can make during the year before CGT is due has fallen significantly over the last couple of years.
The Annual Exempt Amount has fallen to £3,000 in 2024/25
According to research from the University of Warwick, less than 3% of UK adults paid CGT in the decade to 2020. In fact, in any given year, just 0.5% of adults were liable for CGT. Yet, the total amount paid through CGT tripled between 2010 and 2020 to £65 billion.
The government has substantially reduced the amount of profit you can make before CGT is due, so the number of people paying the tax could soar over the coming years.
In 2022/23, the amount you could make before CGT was due, known as the “Annual Exempt Amount”, was £12,300. This was reduced to £6,000 in 2023/24, and from 6 April 2024, it is reduced further to just £3,000.
If your total profits during the tax year exceed the Annual Exempt Amount, your CGT bill will depend on which tax band(s) the taxable gains fall into when added to your other income. In 2024/25, if you’re a:
- Higher- or additional-rate taxpayer, your CGT rate will be 20% (24% on gains from residential property)
- Basic-rate taxpayer, you may benefit from a lower CGT rate of 10% (18% on gains on residential property) if the taxable amount falls within the basic-rate Income Tax band.
So, if you have assets to sell, considering how to mitigate a potential bill could be valuable.
6 practical ways you could reduce your Capital Gains Tax bill
1. Time the sale of your assets
The Annual Exempt Amount cannot be carried forward to a new tax year if you don’t use it. Timing the disposal of your assets could help you make use of the allowance to minimise your bill. For instance, you might hold off selling an asset until a new tax year starts if you’ve already exceeded the Annual Exempt Amount in the current year.
2. Pass assets to your spouse or civil partner
The Annual Exempt Amount is an individual allowance, and you can pass assets to your spouse or civil partner without tax implications. So, if you’ve used your Annual Exempt Amount, transferring an asset to your partner before you dispose of it to use their allowance might be an option you want to consider.
3. Use your ISA to invest tax-efficiently
An ISA is a tax-efficient wrapper for saving or investing. Returns and profits made on investments held in an ISA are not liable for CGT. So, if you want to invest, choosing an ISA may help you mitigate a tax bill.
If you already hold investments outside of an ISA, you could sell the investments and immediately buy them back within your ISA. This strategy of moving your investments to a tax-efficient account is known as “Bed and ISA”.
In the 2024/25 tax year, you can add up to £20,000 to ISAs.
4. Use a pension for long-term investments
Like ISAs, pensions offer a tax-efficient way to invest – investments held in a pension are not liable for CGT.
In the 2024/25 tax year, the pension Annual Allowance is £60,000 for most people. This is the maximum amount you can pay into your pension during the tax year while still benefiting from tax relief. However, you can only claim tax relief on up to 100% of your annual earnings.
If you’ve already taken an income from your pension or are a high earner, your Annual Allowance could be as low as £10,000. If you’re not sure what your Annual Allowance is, please contact us.
The Annual Allowance can be carried forward for up to three tax years. So, if you’ve used all your Annual Allowance in 2024/25, you may want to review your pension contribution in previous tax years.
Before you boost your pension, considering your investment goals and time frame might be essential. You cannot usually access the money in your pension until you’re 55, rising to 57 in 2028, so it isn’t the right option for everyone.
5. Manage your taxable income
As mentioned above, basic-rate taxpayers may benefit from a lower rate of CGT if the gains fall within the basic-rate tax band. As a result, managing your taxable income to stay below Income Tax thresholds once expected profits are included could slash a CGT bill.
6. Deduct losses from your gains
It is possible to deduct losses from the profits you make. You must report the losses to HMRC by including them on your tax return. When you report a loss, the amount is deducted from the gains you make in the same tax year.
If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If the losses reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.
Contact us to talk about your tax liability
Whether you’d like to understand how you could reduce a potential CGT bill or you want to review your financial plan with tax efficiency in mind, please contact us. We could help you identify ways to cut your tax bill in 2024/25 and beyond.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate tax planning.
3 valuable ways business owners could extract profits
As a business owner, deciding how to extract profits from your firm could be a crucial decision. It may affect your tax liability and that of your company. Read on to understand three essential ways you could take money from your business and potential tax implications you might want to weigh up before deciding which is the right route for you.
Many business owners will use a combination of the three options below to extract profit from their business to fund their day-to-day expenses and create long-term financial security.
1. Taking a salary
An obvious way to access profit from your business is to pay yourself a salary.
Paying yourself a salary from your business could help ensure you have a regular income to cover day-to-day expenses. A reliable income source could also make some situations more straightforward, such as applying for a mortgage. So, you might want to consider your short- and medium-term plans when deciding your salary.
In addition, you may also factor in how your salary could affect your tax liability. Your salary could be liable for Income Tax in the same way as other employees.
For the 2024/25 tax year, the Income Tax bands and rates are:
Income Tax allowances and rates are different in Scotland
Being mindful of the Income Tax thresholds might help you to manage your finances and avoid an unexpected bill.
As well as Income Tax, there could be other taxes and allowances you factor in. For instance, moving into a higher tax bracket could reduce your Personal Savings Allowance and lead to you paying tax on the interest your savings earn. In addition, high earners could be affected by the Tapered Annual Allowance, which reduces the amount you can tax-efficiently contribute to your pension.
If you would like to talk about the implications of your Income Tax bracket when setting your salary, please contact us.
2. Supplementing your income with dividends
Dividends could be a tax-efficient way to boost your salary. They provide a way to distribute company profits among its shareholders. So, when your business is doing well, dividends could supplement your other sources of income.
In 2024/25, the Dividend Allowance means you can take dividends up to £500 before tax is due. This allowance has fallen in recent years – it was £2,000 in 2022/23. So, if you’re a business owner who uses dividends to extract profits and haven’t reviewed your tax liability recently it could be a worthwhile task.
Dividends could prove valuable even if you exceed the Dividend Allowance due to the tax rate likely being lower than the rate of Income Tax.
The rate of tax you pay will depend on which Income Tax band(s) the dividends that exceed the allowance fall within once your other income is considered. For 2024/25, the Dividend Tax rates are:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
It’s not possible to carry forward your Dividend Allowance if you don’t use it in the current tax year. So, making dividends a regular part of your income could be useful.
3. Making pension contributions
Making pension contributions could help secure your long-term finances. This is because a pension is a tax-efficient way to save for your retirement – the investment returns held in a pension aren’t liable for Capital Gains Tax.
In addition, your contributions benefit from tax relief at the highest rate of Income Tax you pay. So, if you’re a basic-rate taxpayer who wants to top-up your pension by £1,000, you’d only need to deposit £800.
Usually, your pension provider will automatically claim tax relief at the basic rate on your behalf. However, if you’re a higher- or additional-rate taxpayer, you’ll need to complete a self-assessment tax return to claim the full amount you’re eligible for.
As well as contributions from your salary, you can set up employer contributions from your business to support your retirement goals.
In 2024/25, the pension Annual Allowance is £60,000. This is the maximum you can pay into your pension while retaining tax relief. However, you can only claim tax relief on 100% of your annual earnings. All contributions count towards your Annual Allowance, including employer contributions and those made by other third parties.
Remember, you can’t usually access your pension until you’re 55 (rising to 57 in 2028). So, if you’re using pension contributions to extract profits from your business you may want to consider when you’ll want to access the money and your long-term plans.
Extracting profits tax-efficiently could reduce your business’s Corporation Tax bill
As well as your personal finances, you may want to incorporate your business’s tax liability when deciding how to extract profits.
Corporation Tax is paid on the profits you make, and some outgoings are allowable expenses that could be deducted during your calculations. Allowable expenses may cover employee salaries, including your own, and pension contributions. In addition, employer pension contributions are deducted before employer National Insurance is calculated.
If your company makes more than £250,000 profit during a tax year, you’ll usually pay the main rate of Corporation Tax, which is 25% in 2024/25. If your company made a profit of £50,000 or less, then you’ll pay the “small profits rate”, which is 19% in 2024/25.
You may be entitled to “marginal relief” if your profits are between £50,000 and £250,000. The relief provides a gradual increase in the Corporation Tax rate between the small profits rate and the main rate.
Keeping these thresholds in mind when you’re extracting profits from your business could help you make decisions that are tax-efficient for both you and your company.
Contact us to talk about your personal finances
As a business owner, your personal finances might be more complex. We could offer support and create a tax-efficient financial plan that reflects your circumstances and long-term goals, including your business exit strategy. Please contact us to arrange a meeting to discuss how we can help you.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.