Then make sure that the reduction in contribution into your pension is being saved somewhere else. Isas are the obvious first point of call, but after that a general investment account, EIS or VCT would also work well.
FTA: How are you planning around the 1.25 per cent extra dividend tax?
AV: With clients who have excess cash on the balance sheet, we’ve been encouraging them to take additional dividends ahead of the tax hike. We then use a combination of VCT and EIS planning to offset the tax due.
Granted, the money is tied up for five or three years respectively, but if the cash was excess in the first place, this shouldn’t cause any personal cashflow issues to the client. As with all financial planning, understanding future income and expenditure requirements is crucial to success.
FTA: Given the economic damage the pandemic has caused, how do you think tax policy in the UK is going to develop over the next five and 10 years?
AV: Higher tax bills for both companies and individuals have already been announced, and I can’t see this changing. The huge squeeze on living standards, with the high inflation we're seeing means the opportunity to go much further with higher taxes is politically very difficult and wrong.
The challenge for the chancellor will be to balance a tax system that has some impact on borrowing but encourages growth.
With interest rates low, and government bond yields still low, there is an opportunity to continue to fund spending through debt, rather than fully offset through higher taxes. The higher levels of inflation will also help with the real value of this debt.
FTA: How big an impact will the Ukraine conflict have on future tax policy?
AV: As long as Nato doesn’t become directly involved, the main impact will be around higher energy prices, which were already a big issue before the invasion of Ukraine.
The government must provide a progressive energy subsidy to people on lower incomes. A blanket loan makes no sense, the help needs to go to people who most need it. I don’t believe in windfall taxes, as it changes the landscape for businesses, and will ultimately impact internal investment.
The government should use this opportunity to encourage energy firms to use more of their profits to invest in green tech which will ultimately benefit everyone.
FTA: What are you telling your clients about this?
AV: Clients are understandably shocked and appalled by what’s happening. From an investment perspective, we rely on an evidence-based approach to investing, so the simple answer is for clients to take action and wait for investment values to recover.
