Wealth planning

Budget 2017: the impact on investors

James Gladstone, Head of Wealth Planning at Cazenove Capital, gives initial insight into today's Budget 2017 announcement

22/11/2017

James Gladstone

James Gladstone

Head of Wealth Planning

Much of the post-Budget focus has been on the Chancellor’s eye-grabbing reductions in stamp duty for first-time buyers. You could be forgiven for thinking there was little for investors to think about. But the details within the full Budget papers reveal a number of significant changes, including some that weren’t mentioned in the Chancellor’s speech.

Investment companies

The removal of indexation relief, which provides an uplift to the base cost of your investment by inflation, is a blow to those who hold their investments within the corporate structure. It will increase the amount of tax due when the company comes to sell investments.

Corporate structures are often used to provide greater control and flexibility to investors and to protect those family members who may not be able to manage their own assets. However this change, along with the increase in taxation of dividends at the previous Budget, will increase the impact of double taxation for the ultimate shareholder and no doubt promote a review of whether the corporate structure remains the most suitable option going forward.

Tax-efficient investment schemes

Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS), which direct money into early-stage and small fast-growing businesses, have seen a surge of popularity in recent years. They are highly tax-efficient, offering advantages on both income tax and capital gains tax.

However, increased qualification criteria for companies and funds wishing to secure VCT and EIS reliefs, outlined in the Budget papers, will likely reduce the availability of these investments and ensure that only those with the highest capacity for risk end up taking advantage of this tax break.

For those who do have the appetite for it, the annual investment limit has doubled from £1m to £2m. The 30% income tax relief on offer remains in place but the change only offers relief to companies where there is a significant risk of loss of capital that is in excess of the tax advantage available. This will help ensure that investors do not confuse these high-risk schemes with being a pension alternative.

Pensions for high earners

The closing of this avenue for many poses the question of what should they do if caught by the pincer squeeze on pensions – the reduced pension annual allowance for those earning more than £150,000 a year and the £1m cap of the Lifetime Allowance (LTA). Where do they invest if they do not have the risk appetite for EIS or VCT?

The small inflationary increase to the Lifetime Allowance of £30,000, taking it to £1,030,000, is insufficient to prompt a review of strategy on this point. However, it was good to see the Government not choosing to abolish this promised inflation-linked increase in the LTA and once again dip into the pension funds of those prudent enough to save for their own retirement.

Inevitably investors will need to focus on using their allowances as much as possible (the ISA allowance remains at £20,000) and after this simply investing within a taxable environment to achieve their longer-term objectives within a strategy that is appropriate to their risk profile. With gains on investments in excess of the annual capital gains tax (CGT) allowance still only taxable at 10% for basic rate taxpayers and 20% for higher rate taxpayers, this option does not look too inefficient at all. 

Author

James Gladstone

James Gladstone

Head of Wealth Planning

James joined in 2012 and is Head of Wealth Planning. James is responsible for advising some of our largest clients on broad wealth planning issues including retirement and estate planning, investment structuring and wealth protection. He is also responsible for the Wealth Planning business within Cazenove Capital. Previously he was Head of Financial Planning at UBS and Financial Planning Director at Rathbones. James has over 18 years’ experience and is a Chartered Financial Planner.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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