2024/25
I can hear the collective sigh of relief from the business world as the end of the financial year ticks by; 6th April ‘23 to 5th of April ’24 is now closed … Easter’s timing was most unhelpful this year … though I didn’t have to wait as long to open my Mini Eggs … so “modo vincis, modo vinceris”.
As always, the new year presents savings and investment opportunities but also new fangled limitations – the Capital Gains Tax (CGT) Allowance reduces to £3,000 per annum (£1,500 for Trustees) and the Dividend Allowance falls to £500 per annum.
The tax treatments and savings prospects are interwoven, and it is therefore more important than ever to use your annual ISA allowance (£20,000 per person) where possible; and perhaps to utilise other tax efficient vehicles (Personal Pension, VCT etc). ISAs and Pensions provide a platform for your portfolio of cash, bonds, and equities to grow without CGT exposure, and without dividend tax or tax on savings falling due. The compound effect of these tax shelters can be extraordinary over the accumulation period and/or across the retirement journey– a £100 tax saving which instead remained invested at 5% per annum for 20years would grow to £232.
As well asthe renewed allowances, the dynamics of the markets and the pressure on monetary policy make Spring 2024 intriguing to investors. The UK Base Rate of Interest remained at 5.25% in March ‘24, but zero members of the Monetary Policy Committee (MPC) voted for an increase, a significant swing towards a ‘dovish’ approach to policy and a step towards reductions on 9th May and/or 20th June.
The financial markets returned to net inflows in Autumn ’23, generated by an uplift in investor sentiment and this need to ‘lean into risk’ to achieve returns as interest rate forecasts (the ‘risk-free return’) have diminished; please seethe graph of the FTSE All-share indices during the period.
This domestic growth has been mirrored, and in many cases bettered, by global markets; Japan’s Nikkei 225 went into record territory, exceeding 40,000 at the start of April ’24; and US markets continue to soar on the back of the ‘Big 7’ tech exponents (Apple, Microsoft, Nvidia, Tesla, Meta, Alphabet and Amazon), the Dow Jones closed at 38,596.98 on 5th April. Iranian aggression is now tempering this global uplift in value.
Timing the markets is a high-risk strategy, but time-in the markets is a proven tool in wealth maximisation. It may therefore be an attractive approach to make contribution to tax-efficient wrappers at this time and/or to ‘switch’ and ‘rebalance’ your current investments. The investment landscape is forever evolving, soon going review and management is key to a successful financial strategy. Aperiodic ‘rebalance’, for instance, can crystallise strong performance from certain assets (“sell high”) and buy into areas where greater growth/recovery prospects exist (“buy low”).
Investors will also need to consider the anticipated reductions in cash returns over the next cycle and, as always, the time-horizon and cash requirements they each hold.
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