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Chancellor Osborne’s budget 2014 promises to reward those who work hard and save hard in what is deemed a bold political budget. But looking through the detail, what are the most important changes that will affect our savings and investments – and how does this relate to gold.
Cash and Shares ISAs have been merged into one overall ISA allowance making annual limits less complicated. Most importantly, the annual tax free allowance has almost doubled to £15,000.
This is great news for investors. It’s amazing how many people overlook the importance of being tax efficient in their investments. They don’t realise that they can invest in the same equity fund through an ISA as they can direct – except that any growth within the ISA is tax free. While I’m sure that some are ignorant to this fact, others are simply apathetic. But in this day and age, every penny saved in tax, helps. Therefore, when assessing your finances, one of the first areas to look at is filling your annual ISA allowance, whether it’s with cash, equities or a mix.
If you invest into certain UK gold coins, any growth is tax free due
to their status as legal tender in the UK. This means that they can be seen as an alternative tax free shelter to an ISA. Certainly, if you’re able to fill the new £15,000 annual ISA limit but still have funds to put to work, then it makes sense to continue the tax efficient theme. Due to gold’s safe haven hedging properties, there’s also a strong argument for owning some Tax free gold coins alongside your ISA, even if you don’t fill the entire £15,000 allowance.
Not all the budget 2014 measures provide tax relief. From 6 April 2015, savers will no longer be able to claim 10% of the tax back on their savings accounts. This is a shame because savers have already been hit hard by low interest rates over the past few years. To be taxed the full 20% on that interest means that any returns will fall well below inflation – essentially devaluing your money’s purchasing power.
The very nature of savings is to prudently put money to one side for a rainy day while maintaining the purchasing power of that cash. Gold Savings is a way of putting aside a set amount of savings per month and purchasing physical gold. Gold has historically more than kept pace with inflation, essentially providing a secure store of wealth. The bonus with the Gold Savings scheme is that the gold is tax free, so any growth is exempt from the 20% tax charge applied to regular savings.
It’s still worth keeping some savings in cash, but gold provides a far more tax efficient way of saving.
By far the most exciting policy in the budget is the change from next April, enabling anyone aged 55 or over with a pension fund to take the entire pension pot as cash. Previously, law limited the drawdown to only 25% of the total value, with the remainder being forced to purchase an annuity.
Annuities, or contracts to pay you an income, have notoriously fallen in value over recent years. This means that even substantial pension funds were only able to provide very modest incomes in retirement. It was the single worst element of the UK pension system. Now, you will be able to have total control and flexibility over your money to re-invest, buy property, or spend. The first 25% is completely tax free with the remainder attracting tax at your underlying rate.
Physical Gold bars are the only precious metal permissible within a UK Self Invested Personal Pension (SIPP). The benefits of owning Pension Gold within your SIPP is that it can smooth out any volatility in the markets, providing growth and protection from market events. This means that the value of your pension pot is more predictable as owning gold will hedge possible losses in traditional paper assets. We expect the loosening of the annuity requirements will lead to a surge in pension investment, consequently pushing the gold price up.
So I must agree that overall, budget 2014 has been one for the hard working, proactive amongst us. It’s certainly worth reassessing your personal finances to ensure that you capitalise on any new tax breaks which you may be entitled to.
Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.