Investing in the new tax year.

Last year, the Government announced that from April 2023, the Annual Exempt Amount (AEA) for Capital Gains Tax would reduce from £12,300 to £6,000 –  and reduce further to £3,000 from April 2024. The Annual Exempt Amount is the level of capital gains you can realise each tax year, before Capital Gains Tax is payable. These changes can have a substantial impact on investments, as the cuts will drag more people into paying tax on their investment returns.

To help with this, it is important to consider the role of an ISA and pension contributions in your investment strategy in order to take advantage of tax-efficient forms of investing over time.

Last week (6 April 2023) marked the beginning of a new tax year, so now is a great time to start thinking about making the most of your tax-free ISA allowance of £20,000 by either topping up an existing ISA or perhaps opening a new one.  In respect of investments, we always say it is ‘time in the market’ rather than ‘timing the market’ – so if you are thinking of adding a lump sum to your ISA now, you could benefit from an additional year of investment returns.

It is important to remember that whilst investing is never smooth, it is proven that stocks and shares can significantly beat returns on cash and inflation over the medium to longer term.

With many still scarred from the 2008/9 global financial crisis, the recent collapse of Silicon Valley Bank (SVB) in the US and Credit Suisse in Europe has recently reverberated throughout markets (Please see here). However, despite markets looking jittery, this was not a repeat of 2008 as there is nothing to suggest there is any risk of wider systemic contagion.

Banks have much more capital this time around and, unlike in 2008, we are not at the end of a credit-fuelled property market boom about to crash. From early 2022 central banks began raising interest rates to curb inflation, creating a tailwind for the banks, benefiting their profitability and we believe they remain attractive for long-term investors. Credit Suisse and SVB are examples of challenged institutions with idiosyncratic problems and are not reflective of broader issues in the banking system. The market’s perception created short-term volatility, but it is these types of sentiment-driven anomalies in markets that present investment opportunities.

Rather than listening to the day-to-day noise of the market, it is important not to overreact during periods of instability. Instead, we should maintain a long-term perspective as history shows markets tend to bounce back strongly over time. Although we fully expect to see periods of elevated volatility, we are optimistic about the market outlook, with strong labour markets helping to keep consumers spending and economies continue to demonstrate resilience. We believe that central banks will soon not only announce an end to their interest rate increases but will look at cutting rates to boost economic activity – and this is positive as it should provide plenty of upside potential for both equities and bonds.

Now could potentially be a good time to add to your portfolio. However, as always, speak with your Adviser first to ensure that it is suitable for you.

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