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THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS

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Tax

Charlie Reading, Founder and MD of Efficient Portfolio

After HMRC’s tax return deadline at the end of January, it can be tempting to drop your guard, believing that your new tax bill is a long way away.

It’s true, you’ve got a whole year until the next bill is due. What most don’t consider, however, is that there is a range of checks that you can do reduce that bill significantly.

Astute investors make use of their tax-free allowances every year and save thousands of pounds in the process. With such massive savings on the line, it’s a strategy to certainly consider.

With that, here are some easy checks and tips from Charlie Reading, Founder and Managing Director of Efficient Portfolio chartered financial planners, that could start you on your way to a much leaner tax bill:

 

Tax

Charlie Reading

1. Maximise Your ISA Allowances

Good returns, flexibility, diversity and tax efficiency should be key components in your financial strategy, and the ISA helps to deliver all of these. Historically, ISAs have been at the cornerstone of tax-efficient saving and are often referred to as one of the essential steps in your strategy, as they can help your wealth grow without you being penalised by heavy tax charges. They are an incredibly useful way of saving, and, as such, it is generally encouraged that people take advantage of their benefits. However, the ISA allowance is offered on a ‘use it or lose it’ basis, so if you fail to maximise it, you can’t make up the funds later on.

Up until 5th April 2020, you can contribute up to £20,000 into an ISA, and a further £20,000 from 6th April 2020, thereby sheltering up to £40,000 per person, as long as you’re over 18.

 

2. Top Up Your Pension While You Still Can

At the time of writing, the highest level of State Pension you can receive is £129.20 a week, which is frankly a paltry sum to live on. That’s why saving for the future is so important. It might seem wise to enjoy life now and worry about retirement later, but you’d only be damaging your future quality of life.

Pensions are a highly tax-efficient way of saving and now offer a great deal of flexibility in retirement, as when you retire you can gain access to 25% of your pension pot as a tax-free lump sum, with the remainder taxed at your marginal rate.

The current pension annual allowance is set at £40,000, so if saving for your future is a priority, it is worth investigating which pension is right for you, sooner rather than later.

 

3. Protect Your Estate from Tax

Inheritance Tax (IHT) is a concern for people from all walks of life. If you are hoping to leave a legacy to your loved ones, the last thing you would want is for that legacy to be taxed at 40% and lost to the Government.

One simple way of combatting this is to consider using your annual IHT allowance. During your life, you are allowed to give away £3,000 per year without incurring any IHT charges upon your death. There are of course downsides to this, in that you lose all access and control over the money, but it may be a tax-efficient strategy to consider.

 

4. Don’t Overpay Your Capital Gains Tax

The final tax consideration at this time of year is Capital Gains Tax, which is also given on a ‘use it or lose it’ basis and is currently set at £12,000. The issue of Capital Gains Tax is most acute if you hold investments which have grown above your tax-free allowance.

To ensure you make the most of your Capital Gains Allowance, it is generally recommended to sell down a portion of your portfolio to realise the growth made, but only enough to maximise your allowance, is the most prudent strategy.

These funds can then be used to fund any outstanding allowance on your ISA, for example. The advantage of doing so is that by placing your money from a taxable to non-taxable environment you have the potential for further growth, and you benefit in the longer term by potentially reducing a future bill.

There’s plenty of time left before the taxman comes knocking once again, but there’s no better time than the present to start looking into how you can save you and your business thousands of pounds simply through tax allowances you might not have previously been aware of.

 

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HERE’S HOW INSURANCE IS SET TO CHANGE

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By Adam Goldsmith, Insurance Specialist, SAS UK & Ireland

 

Making predictions about the state of any industry in the coming year is a nigh-on impossible task. But looking to the longer-term, the patterns we’re seeing in insurance firms, which have been inspired by the pandemic, have revealed in no uncertain terms that the industry is in flux. Change is here, and its impact will be felt for many years to come.

Woken up by the sharp jolt of the pandemic, insurance will experience dramatic change by 2025. But not all firms will adapt fast enough to the new insurance landscape or new expectations from customers. Those that pay attention to long-term predictions like the following could reap the rewards post-pandemic.

 

1. Knowing customers inside-out through their data will be non-negotiable

A typical Insurer today is set up in very traditional manner. There remains distinct, separate departments for the key functions: including assessing risk, acquisition, customer engagement, claims handling, customer protection and renewal.

Yet very few insurers have a truly joined-up view of a customer’s full journey with their organisation, let alone what can be done to optimise each interaction. What’s needed is the ability to understand each customer touchpoint as they traverse through their journey, as well as the ability to make decisions as to how best to engage them.

Insurers often cite legacy policy admin and claims systems as the biggest barrier standing in the way of this approach being adopted. By 2025, however, the most successful insurers will have broken those barriers down, gaining an unprecedented understanding of their customers’ needs and preferences, and the ability to offer pricing plans that are both fair and competitive.

 

2. Automation and algorithms will become the bedrock of all insurers

We’ve long heard of ‘digital transformation’ being a key objective for insurance executives. However, by 2025 it’s expected that successful insurers will have completed this transformation. Digitalisation will no longer be the differentiator, it will be the default. As a result, a new way to drive business advantage will have to emerge – and it will be centred on the use of algorithms to drive business decisions.

This is not a new concept. Gartner describes ‘algorithmic business’ as the ‘industrialised use of complex mathematical algorithms pivotal to driving improved business decisions or process automation for competitive differentiation’.

We’ve already seen some insurers start this journey in their claims function. Companies, including Aviva, have long automated decisions concerning whether a vehicle is deemed a total loss or not. However, the trend will become much more prevalent, with Gartner research predicting that, by 2023, over 33% of large organisations will have analysts practicing decision intelligence, such as decision modelling.

 

3. The customer will see positive change as they interact with their insurer

It’s clear by now that COVID-19 will fundamentally change how insurance is done – both in terms of how customers want to interact with insurers, and also how insurers need to adapt. While we hope this pandemic won’t be with us forever, it has opened the eyes of many executives to what is possible within the customer-facing parts of their organisation.

From my discussions with insurers, many have commented on how well employees and customers have adapted to the new normal. While there were initial logistical hurdles in virtualising contact centres, they’ve been impressed at how well staff have adapted under pressure to deliver what customers and shareholders expect. Many are likely to follow the approach of Lloyds in allowing staff to work remotely for the foreseeable future.

 

4. Prevention will be prioritised over payouts

Insurance has long been society’s safety-net, protecting us when something goes wrong in our lives. Yet, it would be to everyone’s benefit if risk could be avoided altogether. The use of telematics to assess the risk of younger drivers was the first big industry push here, but by 2025 we will see this becoming ubiquitous across many other products and customer demographics.

The recent example of Munich Re’s acquisition of IoT service provider Relayr will benefit manufacturers with a ‘pay as you use’ model. This will enable them to be more flexible and react faster to market changes. The IoT Observatory is also exploring new ways that data extracted from connected sensors and devices can help to transform risk assessment and empower insurers with data.

This is no small step for any traditional insurer. But it is one that puts a truly customer-centric lens on the service that insurers deliver. Data-driven risk prevention allows for significant product differentiation, taking insurers out of their comfort zone and enabling them to explore whole new opportunities.

 

5. Fraud prevention must shape up for a post-pandemic world

Come 2025, we will be living in a very different world with new risks that require novel insurance solutions to resolve.

One of the largest looming threats is insurance fraud. Analysis from the Insurance Fraud Bureau shows that fraudulent claims rose by 5% in 2019, and there are concerns the current economic climate could see this rise even further. In the aftermath of the 2008 Financial Crisis insurance fraud rose by 17%, and there’s no guarantee this won’t happen again on the back of growing practices like crash for cash fraud and ghost broking.

Putting in place an effective defence mechanism to intelligently detect, prevent and investigate potentially fraudulent claims will be an essential requirement by 2025. A soft defence is a liability while those that take fraud detection seriously will drive a more profitable outcome. This is especially true when it was announced recently that close to 20% of each policy premium is goes to cover the cost of fraud.

Insurers must be holding a finger to the wind during this unusual time, as many of the themes and patterns emerging now will shape the industry going forward. Insurers must figure out how to adapt their decision-making processes now, to take on an unpredictable and exciting future in insurance.

 

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VOLATILITY IS CRYPTO’S BEST FRIEND

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Stephen Ehrlich, Co-Founder and CEO at Voyager Digital.

 

Volatility is good for crypto. It serves multiple purposes as the whole crypto ecosystem matures, which we have to remember is an industry and technology that is still only just over a decade old. New and emerging industries are by their nature volatile as they move towards mainstream adoption. But the volatility attracts people, investors and technologists, who drive the pace of adoption forward and as it grows, volatility naturally decreases. In the case of Bitcoin, its volatility has steadily been decreasing over time and even the recent sharp moves have not seen such a big rise in volatility compared to historically (see chart below).

Chart showing Bitcoin Price and Volatility

Source: https://www.buybitcoinworldwide.com/volatility-index/

Volatility continues to attract participants as it is unquestionably in our human nature to be drawn to assets that are subject to rapid price appreciation. Throughout history there have been numerous asset bubbles that have burst, with Dutch tulips of the 1600s being the one that most referenced in relation to crypto-assets. But do tulips really provide any utility apart from looking and smelling good? Many crypto-assets actually provide a purpose, a utility, and serve as the backbone to new technology protocols upon which useful apps are being built. This is why we are seeing greater adoption and as the whole market continues to grow, we are now seeing institutions embrace Bitcoin by diversifying into it as an alternative store of value. This is why volatility is good for crypto. But another harsh reality is that it allows people to learn about the risks, as well as the rewards, of getting involved. Hopefully this is done with the assistance of their chosen broker or through educational webinars, video, and other collateral.

Yes, there will be many that will get their fingers burnt, especially if they employ leverage into their trading without a disciplined approach to managing risk. The same can be said of the internet boom and bust in the late 1990s and early 2000s that saw many a “dotcom” go bust. Leverage was around in those days too, so unfortunately many people learnt the hard way, but it is a necessary evil for the industry to become even more established. For Bitcoin, we have seen multiple bubbles burst, with 2017/18 being the last cycle and soon after the sceptics were suggesting the end for crypto-assets was nigh. But those who see the technology’s potential were keeping their heads down and building amazing platforms and applications. If we take a look at Bitcoin today, it’s clear that the end is nowhere near.

Volatility also attracts the attention of regulatory authorities, another natural evolution of nascent industries. On occasions though, there can be overregulation. Whilst the sentiment behind the UK’s FCA ban on retail investors being able to trade crypto derivatives is right, in respect to trying to provide greater investor protection, it can limit choice and ultimately drive investors to offshore brokers that may afford much less regulatory protections. If an investor really wants to employ leverage in their trading then they’ll find a way to do it, so perhaps rather than an outright ban, perhaps limit the amount of leverage they can use instead.

Bans certainly don’t help liquidity and are actually counterproductive. We’ve seen multiple decisions to “ban” crypto reversed as authorities realise that people simply circumvented it by using a VPN or other means to buy Bitcoin. India is now set to vote on a crypto ban, but at the same time they are due to introduce their own Central Bank Digital Currency, which in itself sends out mixed messages. As governments become more knowledgeable on crypto-assets and understand how they are totally borderless, bans are likely to become less and liquidity will continue to improve further.

Coinbase’s prospectus filing and the fact that the SEC is allowing this anticipated $100b direct listing to come public, with significant consumer involvement, is further acceptance of digital assets by the authorities. The continued evolution of the industry going mainstream and public companies vetted and allowed to move forward by the SEC, foreshadows the long-term outlook by the SEC that this industry is here to stay and regulation and acceptance of digital assets as an asset class is forthcoming. Regulation adds legitimacy to the industry and will attract a broader audience of investors and participants, as oversight gives comfort to a larger group of investors.

Regulation is very important, but it needs to find the balance that protects consumers, yet also fosters adoption of what is a truly ground-breaking technology and asset class. So, for those people that complain about crypto markets being too volatile, we NEED volatility in order for the whole ecosystem to thrive.

 

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