How YOU can protect your wealth and future-proof your retirement before the next general election
As the countdown to the next general election continues, Brits have raised concerns about the impact a change in government could have on their investments.
Financial reviews, carried out by management company Saltus over the last 12 weeks, revealed 'economic uncertainty' is at the front of everyone's mind.
According to their latest poll, 31% of respondents believe Labour will win at the next general election, with just 13% believing Rishi Sunak would lead the largest party.
Labour is the most backed political party among British high net worth individuals (HNWIs) — those with assets of more than £250,000. And if an Election were held today, 27% of HNWIs would vote for Keir Starmer's party, compared to just 16% for the Conservatives.
So how can you protect your wealth and future-proof your retirement ahead of the next General Election?
Here, MailOnline outlines the 'four-box principle' to shielding your investment portfolio.
As the countdown to the next general election continues, Brits have raised concerns about the impact a change in government could have on their investments (stock)
Financial reviews, carried out by management company Saltus over the last 12 weeks, revealed 'economic uncertainty' is at the front of everyone's mind (stock)
Pensions
Pensions provide you with tax relief on the way in, provide tax free growth and then on the way out (when you come to withdraw from your pension), you get 25% tax free cash and the remaining 75% is always taxed at the marginal rate of income tax.
Pensions are also exempt of Inheritance Tax on death.
The annual pension allowance is the limit on how much you can save into your pensions each tax-year while still benefitting from tax relief on your contributions, any employer contributions and any contributions made on your behalf by someone else.
The allowance for the financial year 2024/25 is £60,000.
ISAs
Contributions to ISAs are net of income tax and national insurance on the way in, but once it's in the ISA wrapper, there will be no tax to pay ever again.
There is a limit on how much you can pay into your ISAs each year. For the current tax year, the total ISA allowance is £20,000.
Contributions to ISAs are net of income tax and national insurance on the way in, but once it's in the ISA wrapper, there will be no tax to pay ever again (stock)
There are riles on how many ISAs you can pay money into each tax year, although you can pay into more than one cash or stocks and shares ISA in a tax year.
Your ISA allowance applies to the combined sum you put into all of your ISA accounts. Most people make use of a Cash ISA – a savings account that lets you earn tax-free interest on the money you save.
A Stocks and shares ISA lets you invest in stocks, shares and funds tax-free.
Despite being a great way to build wealth, it's important to note ISAs are included inside your estate and so are subject to Inheritance Tax.
General Investment Accounts (GIAs)
A General Investment Account is an account which allows you to hold investments outside of tax wrappers (protected from tax), such as ISAs or pensions.
Unlike ISAs there is no limit to how much you can invest in a GIA.
Choosing a GIA allows you to invest in a wide range of funds, shares and investment trusts. You can take regular withdrawals if needed and can access your money at any time.
General Investment Accounts are referred to as a 'fully taxable environment' by financial advisers, however those with a GIA can helpfully make use of your Capital Gains Tax allowance to access money tax free. The limit set for the current financial year is £3,000.
A General Investment Account is an account which allows you to hold investments outside of tax wrappers (protected from tax), such as ISAs or pensions (stock)
Many people who have used up their pension and ISA allowances have a General Investment Account as step 3 of the 'four-box principle'.
This allows you to use your Capital Gains Tax Allowance year-on-year and also use your Dividends Tax Allowance year-on-year.
In other instances, you can then use those allowances to fund your ISA each year or you can use it to fund your pension each year.
Or you could take part of your General Investment Account in future and open an Offshore Bond.
Capital Gains and Dividends are quite low rates of tax, particularly at the basic rate.
An offshore bond: This essentially defers tax. You're able to access 5% of your initial investment every year with no immediate tax charge and they are free of Capital Gains Tax.
Offshore investment bonds are also referred to as portfolio bonds and tax wrappers.
A General Investment Account is an account which allows you to hold investments outside of tax wrappers (protected from tax), such as ISAs or pensions (stock)
An offshore investment bond is a wrapper set up by a life insurance company and domiciled in a jurisdiction with a favourable tax regime such as the Isle of Man, Luxembourg or Guernsey.
Megan Jenkins, a financial advisor at Saltus, said she has received a great deal of concern from clients regarding an increase in tax under a Labour government.
'Nearly every single financial review meeting I have had in the last 12 weeks has involved answering questions on these topics and the answer is that we just don't know,' she said.
'You can't plan in advance for any tax increases that might or might not happen, because we just don't know. You can only plan with what you have at this present time.'
Explaining the 'four-box principle' she added: 'Diversification across tax wrappers protects from political uncertainty as this means that not everything is held in a pension which can often be impacted by a change in governments.
'The principle is that you use these four boxes because they allow you to blend the different allowances to create the most tax-efficient income.
'I have clients who use the four-box principle and where the Capital Gains Allowance has come down (which impacts a General Investment Account), they have other sources they can use to blend their income tax efficiently.
'So if a government in future decided to start taxing pensions more heavily, you would have the option of using your ISA allowances, a General Investment Account and an Offshore Bond to blend your income because you're not completely tied to one option.
'Reducing your tax burden can have the largest impact on your overall wealth and the net income you receive.
'It provides more life flexibility – you often see people who only hold a pension being reluctant to access their capital because withdrawals are taxed at their marginal rate.
'However, when they have multiple tax wrappers, they can usually access cash for capital expenditure with greater ease as the tax burden is reduced.'
