How Capital Gains Tax (CGT) reforms have changed the face of Onshore Investment.

The Finance Act 2008 removed “Taper Relief” and its predecessor “Indexation” from the Capital Gains vocabulary. It also removed the prospect of Higher Rate Tax and set as standard a rate of 18% tax for gains in excess of the Capital Gains Allowance (currently £10,100 per annum).

There was much lobbying in Parliament by the insurance companies because, at a stroke, the government had virtually confined Onshore investment bonds to history. This, because such bonds are automatically subject to Basic Rate Tax on any gains within the bond, whereas Unit Trusts and OEICs only pay 18% tax on gains in excess of the annual allowance of £10,100, and then only if the encashment were to give rise to such a gain.

For Example: £200,000 invested in a Unit Trust grows in one year by 10% and is worth £220,000. £110,000 is suddenly needed and withdrawn from the Unit Trust. A gain of £10, 000 only would be registered and, because this is within the annual allowance of £10,100, the whole withdrawal would be free of tax

Such changes in legislation are, of course, not exempt from re-adjustment in the future, particularly by a new government coming to power, but I feel fundamental changes would be unlikely. A new government might, particularly given our current level of national debt, be more inclined to increase all levels of tax together, thereby maintaining the imbalance between bonds and unit trusts.

So we are left with a regime that disadvantages Onshore bonds in favour of Unit Trusts and OEICs.

Our Capital Gains Allowance is probably the most underused of our personal tax allowances and I believe it is an area worthy of “in depth” discussion with your financial adviser. Furthermore, any client who has had their money in an Onshore bond for five years or more should look upon such a discussion with some urgency.

Richard Perkins Dip PFS

Ten Top Tips for Retirement

My number one tip is live for today with an eye on tomorrow. Not as difficult as it sounds. Have your holidays, enjoy your family but make sure you budget along the way, keeping some money aside for the future. If you do a proper budget you’ll be surprised at how much money ‘slips through your fingers’ and it’s this money that will make all the difference in making savings for the future.

Everything you save has the potential to be for retirement – don’t just think of pensions as being your only route to income in retirement.

Don’t leave things to chance – you need to plan. This is different from your budget and is really the goals in life you want to aim for. Put it into a financial plan and you’ll be surprised what you can achieve.

Review your finances regularly. What may seem like a good plan or investment a few years ago may no longer be meeting targets.

Really know and understand what you are doing and don’t use ignorance as an excuse for putting your head in the sand. Understand what retirement planning is all about and interact with your adviser properly.

Your finances are your responsibility – whilst your employer may operate a pension scheme or some other type of savings arrangement, this does not mean that you don’t also have to make some allowance for the future.

It’s never too late or too early to start planning.

The best plans can still fail – you can only do what you are capable of – if need be take a break from future planning and look after the now.

Find an adviser you can trust, work & stick with them.

Generally speaking you get what you pay for – don’t always be led by costs.