Seek the winners as the world cleans up

Bozena Jankowska, manager of Allianz RCM Global EcoTrends Fund and Mark Hoskin of Holden & Partners, held a live webchat on Friday 4th of December 09, discussing climate change and investment.

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Tax Strategy

Tax for many is part of the great unknown, but it is central to any long term financial plan and central to our advisory role. Tax can have a large impact on future returns and income. It is also a subject which is constantly evolving as governments change the rules to suit their own objectives and with the current budget deficit understanding the tax implications of the investment decisions a client makes is even more important in the future.

At its simplest level tax planning is making sure that our clients make use of the basic reliefs available to them such as ISAs (Individual Savings Accounts). But as important can be who makes the pension contribution? who holds the assets? Who makes the gift to a child or when it is made? As well as how you document this.

Tax strategy is also important in investment management, though it is often ignored by stock brokers. Buying and selling investments has a tax impact for most investors and gains and losses need to be recorded on your annual tax return. However, these can be planned for, something which few accountants help their clients with until after the event, when it is too late.

It is also important that clients appreciate that tax should not necessarily govern the investment process. Part of our role is helping clients to appreciate this. Many clients sit on inappropriate investments because of the tax bill built up in the gains they have made. Selling an investment in order to pay tax is a hard decision to make, but it can be invaluable. We have had clients both of who have prospered by making this decision, but also those who have lost by avoiding it. It is important to remember as an investor that tax comes as a result of a gain, losses are far worse to deal with.

Today there is an added factor, the very real possibility that capital gains tax will rise from its current rate of 18% to help fund the government's budget deficit. So in 2009/2010 we have been encouraging many clients to crystallise some of their capital gains and pay some tax now, rather than wait to see what the rate might be in 2010/2011.