Month: February 2018

The Great British Tax Grab

– and six ways to prepare against it

First the very good news

Reading this and acting accordingly will save you money in the coming year!

That’s because, in just a few months (April 2018) the tax-free dividend allowance is going to be reduced from £5,000 to £2,000. This will reduce any tax-free sums investors receive in dividends by over half.

Those hit hardest will be any small business owner, who pays themselves via a dividend, as well as investors who are dependent upon income from shares or funds; especially those who are now retired.

However, there are things you can do that might help save you from ‘the grab’.

How will the tax grab work?

From April this year basic rate taxpayers with dividends of £5,000 will have to pay an extra £225, higher rate taxpayers an extra £975 and additional rate taxpayers an extra £1,143 in extra income tax.

The numbers speak for themselves and we would advise clients to start exploring the ways they can mitigate the impact of these changes.

So here are six of the best ways to guard against the grab
• Put investments in joint names
• Make use of exempt wrappers
• Split investments or income to minimise tax
• Rebalance your investments
• Place equity investments within an investment bond
• Review your current position

Joint names

Two names are always better than one when it comes to avoiding any tax grab. By switching investments into your and your spouse’s name you may help prevent paying excess tax.
Take a retired couple with a £100,000 investment in a UK equity income collective fund (held in one name), who receive £4,000 pa income distributions. The April 2018 changes would mean that an additional tax of £150 to £762 would be due (depending upon tax status).

If the fund was switched to joint names, this could help avoid any increase in tax paid, as both spouse’s tax-allowance is now utilised.

Exempt wrappers

Equity investments held via ISAs, Pensions or VCTs are exempt from dividend taxation. Meaning that a couple investing £40,000 in a UK equity income collective investment fund in a stocks and shares ISA this tax year (at a distribution yield of 4%) will receive £1,600 pa tax-free.

That’s a saving of £120 and £610 each year. Plus they can invest into their ISA each year from then on, which further increases the tax saving.

Split investments or incomes between spouses

It doesn’t have to be a 50:50 split, as clients need only hold specific proportions of investment in order to utilise any dividend allowance and take advantage of lower marginal dividend tax rates.
A couple with a jointly held £200,000 of UK shares and collective investment funds would receive £8,000 pa income distributions.
Although they might both have their dividend allowance available from 6 April 2018, if one is a HRT and the other a BRT, then they would be wise to split their investment 25:75 in favour of the BRT. That way the dividend tax on anything over their tax allowance only gets taken at 7.5% and not 32.5%.

That’s a saving of £500 each year – which is a significant 25% tax difference of £2,000.

Get the balance right

Rebalancing your investments between those taxed as interest or dividends can be a clever move. If you currently hold a mix of investments, with some taxed as savings income and some as dividends, then you should review your position to ensure that both your personal savings and dividend allowance are being properly utilised, so that you are achieving the full £6,000 pa for each as tax-free income.

With tax on savings set higher than dividends, you may wish to consider investments in exempt wrappers. Equally with your personal savings allowance at £1,000 pa (BRT) or £500 (HRT) each, means that a corporate bond collective investment fund with a distribution yield of 4% equates to a £50,000 tax-free investment per BRT couple.

Make better use of investment bonds

Tax deferred investment bonds (onshore) may be an advantageous way of holding UK equity investments. Especially if you are an individual who has fully used your dividend and other allowances, or you are a trustee of a discretionary trust who just doesn’t receive them. As dividend income received by onshore investment bond life funds is free from corporation tax.

What that means is the overall tax paid by a UK equity life fund could be significantly lower than the BRT credit given.

For example, a HRT investing in a UK equity fund through an onshore investment bond would have no on-going tax liability and, if they are a BRT on encashment, pay no further tax


As always, whenever the government present a new change in the rules, designed to catch the complacent napping, now is the time to wake-up and take action.

You may have been under the tax-allowance prior to April 2018, or just wish to make sure that you are taking advantage of all the tax breaks available. Whatever your motivation, a review of your individual position can only ever be a good thing.

Now is the time to contact your adviser regarding the changes that are coming. As always, here at Bridgewater Financial Services we are here to help. If you would like one of our dividend taxation experts to look at your tax position, then please get in touch on 0161 637 2191 and arrange a consultation.

REMEMBER – April will be here before you know it!

Just because the markets change, you shouldn’t follow.

Back in December I wrote a blog regarding my Top 10 Investment tips. A blog designed to give you a guide to investing in the stock market and, more importantly, some practical advice on how to swerve some of the more avoidable traps that can lay in wait.

My Top 10 were:
• Embrace Market Pricing – it knows the worth of a stock
• Trying to outguess the market isn’t a sensible strategy
• Past performance is no indicator of future positions
• Play the long game and let the markets do the work
• Have a look at the woods as a whole, not just the trees
• Fish in the wider oceans
• Try to avoid bandwagons
• Keep your emotions out of your investments
• Don’t believe all that you read in the papers
• Stick to your plan – focus on staying on course

The full blog can be found here:

A little insight into the great investment question

However, with the ongoing volatility and distractions in and around the markets, I thought that I might just reiterate one or two important points regarding holding your nerve.

2B or not 2B?

I’m sure that when Shakespeare wrote that he didn’t have Bitcoin or Brexit on his mind. However these two modern days B’s seem to be claiming most of the financial headlines at the moment. On one hand Bitcoin seems to be the answer to everyone’s prays. Presented as a get-incredibly-rich-quick scheme that seems like a no-brainer, but you have to ask who’s really making the money now. The simple answer may lay at the feet of those brokers who are trying to drive investment in the commission-rich bubble that is Crypto Currencies. Yes, the history of Bitcoin growth is phenomenal, but as I said previously ‘Past performance is no indicator of future positions’ and you should always ‘Try to avoid bandwagons’. Couple that with the fact that Bitcoin lives in the dark web (the domain of criminals and terrorist) and you have to also ask would you trust any investment made where organized crime lurks in the shadows?

Brexit is another big distraction for the markets. Ask yourself if anyone really knows what’s going to happen after Brexit. I’d argue that, given the fact that no one yet knows what the terms of Brexit will be, it’s impossible to know what impact Brexit will have on the markets.
We all know that fear helps sell newspapers, which is why the newspapers love stirring-up doubt and fear over the negotiations with the EU and what that will mean to all our futures. Again I remind you of one of my Top 10 Tips “Don’t believe all that you read in the papers”.

Plain sailing or stormy waters?

Ultimately how bullish you are is a matter for you. But I would advise that changing a winning strategy just because the markets are a little volatile is unwise. Even the most bullish captain would find it hard to justify steering towards a storm, just to see if there is some opportunity to catch some strong winds in the sails. It’s not an option for traversing the seas and certainly it shouldn’t be an option for navigating the markets either.

In turbulent times, we batten down the hatches and ride out the storm. It’s exactly the same for the markets, you sit tight and wait for the markets to settle. Again, as I said in my Top 10 Tips “Play the long game and let the markets do the work”.

Keep calm and carry on

Back in December I finished my Top 10 Tips with this piece of advice: “Stick to your plan – focus on staying on course”. Nothing has changed. You should always focus on what you can control and what your long-term investment strategy is. Stick to what you’re doing and avoid reacting to movements in the market, no matter what Joe Public is saying.

If you’re looking for advice, then get it from someone who knows. Speak to your adviser about elements of your investment strategy that might concern you, or ask them about the ‘golden opportunities’ being presented to you. Either way they will be able to share some emotion-free expert insight, based upon long-term investment strategy and researched market knowledge.

Always remember – there’s no such thing as a silly question

When it comes to your finances, if you want to know more, please ask. Your adviser is there to help guide you to the many opportunities that present themselves and to steer you away from the pitfalls. If there is anything you’re not sure of, or you wish to discuss an opportunity that you believe the markets present, then speak to a qualified adviser. If you don’t currently have one of your own, then please don’t hesitate to contact Bridgewater Financial Services, as we will be only too pleased to help.