Welcome back to our series of exclusive interviews with industry experts. In this series, we speak to key figures in the tax-efficient space to find out their outlook on the new tax year, hear their thoughts on the 2023-24 tax year, and provide their tips for advisers.
This time, we have David Lane, Partner and Technical Director at LGT Wealth Management. David shares some advice for the new tax year and weighs in on the effects of a potential general election.
Q: What does this new tax year mean for tax-efficient investing?
The key to answering this question is recognising two features of our current tax system as it relates to personal taxation. Firstly, fiscal drag with the continuing freezing of allowances and exemptions. For example, the Inheritance Tax Nil Rate Band Threshold frozen since 2009 at £325,000 and the Personal Allowance and higher rate tax threshold frozen until 2028. The impact of this policy of fiscal drag is heightened when combined with the reductions in certain allowances. Best examples being the reduction in the dividend allowance to £500 and the cut to the Annual Exempt Amount for Capital Gains to £3,000. With this backdrop “tax alpha” can only be generated through a careful harvesting of the allowances and exemptions that remain and utilising, as effectively as possible, the tax wrappers that are available to us.
There are still a range of highly tax-efficient options available to financial planners and their clients. The trick is to work through which are going to be most effective both now and in the future. That is always the hard part!
Q: How you think a potential general election will impact the tax-efficient space?
If the polls are to be believed it looks likely that we will see a change of government and possibly a new approach that will impact financial planners. In the next parliament expect a further review of the pension tax landscape, perhaps more wide-ranging than what we have seen with the abolition of the Lifetime Allowance. All the principal taxes will be reviewed, so expect further change. But with change comes opportunity and the need for advice will only go one-way whether that is in terms of tax planning and/or portfolio construction. This brings its own challenges but if what I think will happen does happen, then we are due for a very busy five years.
Q: Looking back, are there any lessons to be learnt from the 2023-24 tax year?
Warren Buffet once said that “the stockmarket is a device for transferring money from the impatient to the patient”. 2023-24 was a year that did reward the patient after witnessing the lows of 2022. 2023 reminded us that investing, as opposed to say speculation, takes time and patience. Long-term investors will be rewarded. It may not always be an easy journey, but Buffet is right.
Q: Finally, what advice would you give to advisers on how to approach tax-efficient investments this year?
There has been increasing focus on utilising investment bonds for the right client in the right circumstances. It is worth remembering that a tax deferred is a tax saved. These types of structures (whether onshore and/or offshore) offer a variety of tax planning opportunities for the client and can be applied across a range of circumstances, whether that is trust planning, mitigation of inheritance tax, school/university fees. The list is endless. Product development has also meant that advisers are able to access a range of Discretionary Managed Solutions as the “investment engine” that sits inside the bond wrapper.
Flexibility is an overused word but accessing a “flexible” tax wrapper and accompanying investment solution that has the potential to be multi-generational, allows for advice to be structured over the very long term. This is always going to be attractive to the right client. There are a number of ways we can mitigate Capital Gains Tax (CGT), for example the use of multi-asset funds can defer CGT until a disposal of units has been made by the end investor.
David is a Partner and Business Development Technical Director at LGT, joining from AXA where he was a senior technical consultant based in Central London. David specialises in providing technical consultancy services to IFAs, lawyers and accountants focusing primarily on UK pensions, tax and trusts and general financial planning.
