Growing your wealth in a high tax and high interest environment
The squeeze on tax allowances means thousands of people who have maxed out their Isas will face much higher tax bills this year.
The threshold at which capital gains are taxed more than halved from £12,600 to £6,000, and will fall again to £3,000 from April 2024. The annual dividend allowance – the amount you can earn from shareholder payouts before tax is due – has dropped from £2,000 to £1,000, and will also drop again to just £500 next year.
Inheritance tax is also a concern too for many, as it is the biggest transfer of wealth you’ll get within families. The standard inheritance tax threshold has been frozen at £325,000 since 2009 and will remain so until 2028, dragging more and more families into paying the levy.
Here are some strategies and advice for UK small business directors looking to grow their wealth in a high tax and high-interest environment:
Tax Planning
Utilize tax allowances: With tax reliefs reducing again from April 2024 for capital gains and dividends, now is the time to take advice. Personally, make sure you take advantage of tax-efficient investment options like ISAs (Individual Savings Accounts) and pension contributions to maximize tax savings.
Seek professional advice: Consult with a qualified accountant or tax specialist who can help you identify tax-saving opportunities, such as claiming business expenses, reliefs, and allowances. Get in touch for a complimentary consultation.
Consider tax-efficient structures: Explore whether it's beneficial to operate as a limited company, which can provide certain tax advantages over being a sole trader or partnership.
R&D Tax Credits: If your business invests in research and development activities, you may be eligible for R&D tax credits, which can provide substantial tax relief.
Investments and Savings
Diversify your portfolio: Spread your investments across various asset classes, such as stocks, bonds, property, and alternative investments. This helps reduce risk and maximize potential returns.
Take advantage of tax-efficient investments: Explore options like Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS), or Seed Enterprise Investment Schemes (SEIS), which offer tax reliefs to incentivize investment in certain sectors.
Consider pension schemes: Contributing to a pension scheme not only helps you plan for retirement but can also provide tax relief on contributions, offering an opportunity to grow your wealth tax-efficiently.
Debt Management
Optimize debt structure: Evaluate your business's debt structure and consider refinancing or consolidating high-interest debt to reduce interest costs.
Negotiate favorable terms: When seeking financing, negotiate favorable interest rates and terms to minimize the impact of high-interest rates.
Cash flow management: Maintain healthy cash flow by monitoring and managing your receivables, payables, and inventory levels efficiently. This helps reduce the need for costly borrowing.
Continuous Learning and Networking
Stay informed: Keep up to date with changes in tax regulations, financial markets, and investment opportunities through reading financial publications, attending seminars, or joining professional networks.
Seek professional advice: Consult with financial advisors, wealth managers, or business consultants who can provide tailored guidance based on your specific circumstances.
Network with peers: Engage with other small business directors, join industry associations, or participate in networking events to share experiences, learn from others, and discover potential collaboration or investment opportunities.
