Opportunity knocks, but not for long
special report: year-end planning; Clifford German introduces a three-page guide to making the most of seasonal bargains
The right time to buy financial services, of course, is when they are needed, or when they are affordable and cheap. Insurance comes into the first category, mortgages are in category one, remortgages in category two, pensions probably have a foot in both camps, while investments are strictly second-category purchases.
A fixed-rate loan taken at a high interest rate when rates are set to fall, or a fixed-rate deposit placed at a low rate when rates are due to rise is quickly made to look hasty, and shares, unit trusts and even Personal Equity Plans bought when values are looking over-cooked are soon regretted.
Most tax advisers actually recommend that investment and especially tax planning moves should be made early in the year in order to get the maximum advantage of the earning power and the tax concessions that might be available, as well as to beat the rush.
But there is no denying that many investments depend for their appeal on tax rules drawn up by successive chancellors and applied to the financial year, which traditionally begins on 6 April and ends the following 5 April. And sometimes it is better to wait until the last minute to see exactly how different investments are shaping up and exactly how much money you can prudently afford to set aside.
This year it is also worth remembering that 5 April is Good Friday, so the tax year ends for investment purposes on 4 April. If you want to take advantage of the traditional seven-day cooling-off period you should really make any decision by 28 March.
The main tax rulings involve pensions, PEPs, and special tax shelters, ie venture capital trusts and enterprise investment schemes. But the year- end also has implications for inheritance tax planning, the calculation of taxable capital gains and the opportunities to shelter gains and postpone the day when any tax may have to be paid.
If you have not put the maximum you are allowed by law tax-free into a company pension plan or into additional voluntary contributions each year, you will have lost at least some of the opportunities.
The tax clock on Tessas starts on the day you open the account and ticks for five straight years, regardless of the intervening tax years. But if you have not bought your full allowance of pounds 6,000 invested in a Personal Equity Plan or corporate bond PEP, plus pounds 3,000 invested in a single-company PEP or bond PEP by the end of the tax year, the opportunity will, like Clementine, be gone and lost forever. If you have not invested the (up to) pounds 100,000 you can put into a venture capital trust or enterprise investment scheme you will have missed the boat, for the current year at least.
Capital gains are also liable for tax in the year in which they are taken. This year you can realise a capital gain of up to pounds 6,000 without any liability. From 6 April, this ceiling rises to pounds 6,300. So if you want to sell assets that will create taxable gain it makes sense to sell some of the asset this year and some next year to reduce or even eliminate the taxable gain in each year.
Likewise if you expect to realise future gains that will be over the limit, it makes sense to realise up to pounds 6,000 before 4 April and buy the asset back when markets reopen on 9 April. Unless prices have moved sharply you will have crystallised a gain that will be tax-exempt and reduced any subsequent gain on which to pay tax and it will only have cost you the commission charges on the transactions.
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