Creating certainty in taxing times
As published in the 2018 edition of The Spear's 500:
Typical, isn’t it? Amid political and economic upheaval, you cast around for a nugget of surety. When one finally turns up, it’s not what you were looking for. If you’ve been keeping abreast of political and economic developments in recent months, you may have realised that one of the few conclusions anyone can draw with confidence at the moment is that personal taxes – if they are going to move – are only likely to travel in one direction: Up.
The Prime Minister refused to rule out tax rises time and again during her 2017 election campaign. The Chancellor says he remains committed to balancing the country’s books by eradicating the deficit. Of course, in an ideal world, he would prefer to achieve that goal through economic growth rather than tax hikes or spending cuts. However, his assurances that taxes will be kept “as low as possible” have fallen short of the copper-bottomed guarantee that many people would like to hear.
The Institute for Fiscal Studies warned in the summer of 2017 that a further £15bn of spending cuts or tax rises (or a combination of the two) would be needed if the government was to meet its stated aim of eliminating the deficit by the end of the next Parliament. Meanwhile, the most recent British Social Attitudes Survey found that enthusiasm for public spending cuts has tailed off (favoured now by just 29% of respondents, compared to 35% a decade ago) and that there is a growing appetite for tax rises. Some 48% of respondents said they would welcome them, while 44% think taxes should remain as they are. Only 4% favoured a cut.
If anyone thought that the public purse would soon bulge thanks to savings made from the cessation of contributions to the EU budget, then recent negotiations seem to have ruled that out – at least in the near term. What is more, you can believe that if the precarious political situation we have at the moment results in Prime Minister Corbyn moving into Number 10, those tax rises will arrive sooner rather than later – particularly for higher earners.
How best, then, to navigate these tempestuous waters and establish a few more favourable firm conclusions? Is now the time to buy property? Sell property? Cash in your pension? How and where should you invest? Should you be re-organising your finances with post-Brexit Britain in mind?
One step that some investors should consider is to take advantage of historically low capital gains tax rates to crystallise profits on investments that are not protected by low-tax or tax-free wrappers. UK capital gains tax for higher rate taxpayers was cut from 28% to 20% in 2016 and, if a trend of fairly regular and dramatic changes to the regime continues, could rise significantly in the near future.
Before taking such a decision, though, the first step to insulating yourself against uncertainty should be to ensure that your finances are handled in the same systematic, methodical approach that you would apply to your professional life. That requires expert in-depth knowledge that only comes from a specialist in the field.
At London Wall Partners, we provide clear-eyed, straightforward advice and not woolly options. We have never taken commission or payment from providers for recommending any investment funds or products. That’s not as a result of the new regulation that forced many advisers to change their ways when it came into effect in January 2013. We have always charged totally transparent flat fees, simply because it provides our clients with certainty and is the right thing to do.
Our approach also combines financial planning with investment management, because the two things are – or should be – inextricably linked. How could anyone be confident that a particular investment, fund or course of action is right for their client without first understanding their particular financial situation and wider goals?
Of course investments are another field in which certainty can be hard to come by, but it is possible to balance prudence with productivity. Economies are still underpinned by trade and industry, a fact which means that strong, well-managed businesses with an eye on the future are overwhelmingly likely to remain in the box seat for some time to come. Our investment strategy acknowledges this and focuses on the type of businesses that have the strength to withstand short-term tremors in the markets and the longevity to flourish on the other side of them. In these uncertain times, that is a comforting thought indeed.
By Nick Fletcher, CEO, London Wall Partners LLP
Investments fluctuate in value and may fall as well as rise and investors may not get back the value of their original investment. Past performance of financial markets should not be used as a guide to future performance.