You’ve worked hard and invested hard, don’t overlook the importance of defending your wealth. The defence of your investment portfolio is every bit as critical as portfolio building.

Know your Enemy

Any defence mechanism can only be effective with full knowledge of our enemy; good wealth defence requires knowledge about the three primary enemies of wealth.

• Tax


• Inflation


• Stock Market Crashes

Without proper defence any one of these three characters will attack, potentially leaving your wealth wounded. Let’s look at some practical measures that can be taken to defend your portfolio.

Inflation

Currently inflation is not the great threat that it has been in past years; however you should always be on your guard. One of the best sources for information about current inflation is the Bank of England’s web site. The latest report can be found at
http://www.bankofengland.co.uk/inflationreport/irlatest.htm

The current forecast is for a gradual lift in inflation that will probably result in small interest rate rises, no major reason to panic, however if you’re coming to the end of your investment cycle i.e. retirement or just downsizing, the chances are you will have the majority of your portfolio invested in very stable low risk areas. Keep an eye on your annual investment growth %age and the underlying inflation rate %age if the difference starts to get too close for comfort it may well be wise to speak with your financial consultant who would be able to advise you about any changes that could be made to protect against the effects of inflation.

Tax

Unless you take advantage of every available tax break you could see a huge chunk of your assets being used to fuel government funds. Make it a number one priority to find out about every tax break that you qualify for and use it to the max. Some of the best tax breaks available at the moment are.

ISAs (Individual Savings Account)

A key weapon in portfolio defence, an ISA is simple to start and very effective at stopping the tax man in his tracks.

An ISA is effectively the government’s way to encourage us to save by providing a reasonable tax incentive. With an ISA you don’t need to inform the tax man about your investment because there is no additional income tax or capital gains tax to pay. You can either invest £7,000 a year into a maxi equity ISA, £3,000 into a cash ISA, or £3,000 into a mini equity ISA and £1,000 into an Insurance ISA . Speak to a financial consultant for advice on the best ISA for your needs.

Spouse

Your spouse will probably not appreciate your referring to them as a ‘Tax Haven’, however using their tax relief as well as your own can substantially reduce your taxation liability.

If you are already a high rate tax payer, cashing in investments like stocks and shares could attract up to 40% tax; by splitting the shares between yourself and your wife you may be able to keep the profits you’ve made below your tax free allowance.

IHT (Inheritance Tax)

As property values soar more and more people fall into the inheritance tax trap and risk landing their heirs with a 40% tax bill on anything that is above the current IHT exemption level of £263,000.

A financial consultant will be able to help you to divert your assets keeping them below the IHT threshold. Trusts are one of the primary methods of reducing IHT liability; discretionary trusts are idea when you aren’t sure exactly how you want to divide your assets up or who should benefit, the trust will protect your assets while still giving you the control to change the beneficiaries as and when you see fit.

You will still be liable to IHT if your trust exceeds the £263,000 limit however this is at a special rate currently only 6%, your consultant will be able to advise you if this is of concern to you.

Finally a very straight forward method of avoiding IHT is in giving gifts; the giving of gifts should not be seen to be making a substantial difference to your standard of living however, seek advice on the best methods of providing gifts without risking any unwanted attention from the tax man.

In Part 2 of Tax Consultants Guide to Defending your Wealth

At a time when many people are beginning to feel a little more comfortable with the stock market again it’s a good point to remember that stocks can go down as well as up and sometimes a little faster than we would care for. Tax Consultants Guide discusses Protected Plans these schemes can prove ideal in protecting your assets.

Tax Consultants Guide 2004

The tax and financial consultants guide

The material provided by Tax Consultants Guide is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.