Episode 407 - On this week's episode I discuss tax planning measures ahead of the Capital Gains Tax allowance cut in April 2023. I also delve into the Gender Pension Gap facing women and discuss what to do about it. Finally, I reveal some of the insights gleaned from the latest research carried out for 80-20 Investor members looking to build an income portfolio.
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Episode summary
Gender pension gap
Ahead of International Women's Day look at the "gender pension gap". The phrase gender pension gap refers to the difference in retirement outcomes for men and women. Research carried out by AVIVA (see the link in the ‘Resources’ section below) has shown that women aged 60-65 have an average pension pot that is just 57% of the size of a man's pension pot of the same age.
The gender pension gap is a complex issue that requires a range of changes to resolve, including changes to society and legislation. One of the initial hurdles in closing and ultimately eradicating the gender pension gap is that there is no official definition of what it is.
Aviva has published research on the gender pension gap by analysing 5 million pension plans and found significant differences in pension contributions between men and women, which ultimately has a significant impact on income in retirement.
The research shows that men contribute more, on average, than women of the same age and this gap widens from age 35 onwards. Part of the reason for the divergence at this age is likely due to women needing to make career and childcare decisions that can impact their ability to contribute to a pension. On the podcast we discuss a number of solutions including removing the lower qualifying earnings threshold for auto-enrolment. This would mean more employed women, working part-time, would enjoy pension contributions from their employer. In the show we also provide tips on how women can try to increase the pension income they will receive at retirement.
Capital gains tax allowance reduction - what to do
Currently, the personal Capital Gains Tax (CGT) allowance is £12,300, meaning that you can sell an asset and make a profit of up to £12,300 in a given tax year, without having to pay capital gains tax.
To calculate your taxable gain:
- you work out your taxable income
- then take away your income tax personal allowance and any income tax relief available
- deduct any capital losses
- before deducting the CGT allowance mentioned above.
- if the taxable gain is within your basic rate income tax band, you pay 10% on any gains (18% for residential property), or 20% on any amount above the basic rate tax band (28% for residential property).
From April 2023, the CGT allowance will drop to £6,000, and from April 2024, it will drop to £3,000. In this episode we discuss a number of financial planning measures that can reduce your CGT liability and mitigate the reduction of the capital gains tax allowance.
These include:
- making sales before the tax year-end in order to utilise your full CGT allowance
- using any capital losses in the same tax year to reduce your potential CGT bill
- carrying forward unused capital losses indefinitely to offset capital gains. However the losses must be reported to HMRC within four years of the end of the tax year in which they occurred
- As the rate at which you pay CGT is determined by your income, plan ahead if you expect changes in income that could affect the rate you pay.
- using a spouse’s CGT allowance if available (this can be achieved by transferring assets into their name before disposal)
- Utilising ‘Bed & ISA’ and ‘Bed & SIPP’ techniques to realise capital gains (or losses) while being able to buy back the investment immediately without falling foul of HMRC’s ‘30 day rule’.
- but... selling and buying buying back a similar investment (e.g. using FTSE 100 tracker funds) within 30 days outside of an ISA and SIPP can also realise a gain to utilise a CGT allowance while minimising time out of the market
You should seek the advice of a tax accountant before you make any disposals or try to mitigate CGT or income tax.
In this episode we also discuss the implications of changes to the dividend tax allowance which will be reduced from £2,000 to £1,000 from April 2023 and to £500 from April 2024.
Income investing opportunities
In this section of the podcast we discuss some of the key findings from the latest update of the 80-20 Investor equity heatmaps and the implications for building a portfolio that generates a sustainable income stream. There is a link in the Resources section below that allows you to take a free trial of 80-20 Investor so that you can view the heatmaps.
