'Maximising Isa contributions before paying into a GIA is a no-brainer'

The 2021-22 tax year ends on April 5, about two weeks after the government's spring statement, which is due to take place on March 23.

The tax burden is already at a 70-year high, as rising inflation couple with rising energy prices adds further strain to the cost of living for many.

With that in mind, advisers will want to make sure they secure every penny of tax saving they can for their clients.

Cotter, a chartered financial planner and managing director of Lumin Wealth, tells FTAdviser In Focus what his business will be prioritising in these coming weeks; his outlook on what's to come as the chancellor seeks to balance the books; and his business's take on the growing phenomenon that is cryptoasset investing.

FTA: We are approaching the end of the tax year, what will Lumin Wealth's advisers focus on in these final weeks of the fiscal year?

MC: The end of the tax year is always a busy time for advisers up and down the country. The Lumin team will be concentrating on implementing our capital gains tax ‘harvesting’ process, making use of the £12,300 annual exempt amount to offset gains made on investments held in our model portfolios.

We run a CGT report for each client and assess the possibility of making any switches or trades to crystallise any extra gains to meet the allowance. We do this in March because it is after the last rebalance, so no further gains will be crystallised by our investment process.

FTA: If there was one thing a tax planner should do in March, what should it be?

MC: We are often surprised by the way in which some consumers use general investment accounts. GIAs of course have their place; they can be accessed at any time, and there is no limit on contributions. However, they don’t benefit from the same tax-free privileges as pensions or their Isa cousins.

Reduced tax privileges could well be in the pipeline in the spring Budget.

The Isa annual allowance of £20,000 for each adult operates on a ‘use it or lose it basis’ in each tax year, so maximising Isa contributions before paying into a GIA is a no-brainer.

FTA: How do you expect the economic environment to develop over the next year and what effect will this have on financial planning?

MC: If anything, the current squeeze on the cost of living, combined with headwinds such as the planned national insurance hike and threshold freezes, means that the financial advice market is even better placed to assist consumers in a time of need.

We have seen many consumers come to us with financial planning needs amid the pandemic landscape, and that need isn’t going to go away any time soon.

The tax environment is tough right now, and could get tougher still. Tax changes are difficult to predict with any degree of certainty, but reduced tax privileges could well be in the pipeline in the spring Budget.

FTA: What's your outlook on the tax-efficient investments market? 

MC: Given the restriction on pensions for higher earners and the tax breaks available for high-net-worth clients, we believe that this market will develop.

Our current feeling is that in general the retail space for venture capital trusts is populated with lower quality offerings, with the better opportunities having been snapped up upstream from the retail space.

The collective squeeze on the consumer purse borders on the vice-like.

Rather than consolidation, we expect some higher quality originators will form strategic alliances with some of the more sophisticated wealth management companies.

FTA: Do you foresee a shift in the role crypto is playing in your clients' portfolios?

MC: We have been asked by numerous clients about the pros and cons of investing in cryptoassets, such as bitcoin. But cryptocurrencies are notoriously hard to regulate, and there is currently no protection for those who own them. 

Some advisers may shy away altogether, but as a forward-thinking company it would be remiss of us to ignore crypto entirely.

We don’t engage directly in cryptoassets currently, due to extreme volatility and a lack of regulation, but we remain open-minded in the longer term, and our in-house investment team is keeping a finger on the proverbial pulse. 

FTA: What concerns you most about tax policy as we move into the new tax year?

MC: The personal allowance and inheritance tax thresholds of £12,570 and £325,000 respectively have been frozen until April 2026, as has the lifetime allowance ceiling.

There are rumours that the latter could be reduced in future Budgets, with figures of £900,000 or £800,000 mooted.

Taken together with the upcoming national insurance rise and the current cost of living crisis that’s a fairly bitter taxation pill for consumers to swallow.

FTA: With that in mind, what do you expect from the spring statement?

MC: Tax announcements are notoriously difficult to predict – the ‘will they, won’t they’ national insurance saga is a case in point.

The chancellor must chart a course through choppy waters in his spring Budget. It’s a delicate balancing act.

On the one hand, the Treasury is seeking to claw back costs after an unprecedented period of pandemic-induced emergency government support.

On the other, there’s the dilemma of previous (and possible future) tax freezes or rises. Add rising interest rates and rocketing inflation into the mix and the collective squeeze on the consumer purse borders on the vice-like.

The retail space for VCTs is populated with lower quality offerings, with the better opportunities having been snapped up upstream from the retail space.

The CGT annual exempt allowance of £12,300 is a soft target, given a previous recommendation by the Office of Tax Simplification that it could be reduced to £2,000–£4,000.

The chancellor also remained silent in his autumn Budget regarding a mooted change that would see CGT rates align more closely with income tax bands, so it wouldn’t be a surprise to see changes on this front.

FTA: What's your secret tip for all advisers looking to make some last-minute tax savings for their clients?

MC: The best time to start planning for end-of-tax-year savings is April 6. Leaving it to the last minute is not a scalable or repeatable process.

carmen.reichman@ft.com