From managing a junior ISA to preparing for upcoming tax changes, Hargreaves Lansdown’s Susannah Streeter offers her advice in today’s Notebook
Avoid those taxing regrets
Hindsight can be painful, especially when it comes to your finances. I’d love to tell my twenty-something self to buy more stocks than frocks. Whether I’d have listened is a moot point, but it never pays to stick your head in the sand when economic shifts may be hovering on the horizon. With rumours whipping around about tax changes in the upcoming budget, it’s worth making sure you don’t look back on 2024 as a year of financial regret.
If you are concerned about pension tax relief being cut, make the most of your current pension allowance. There’s been a surge in people maxing out their self-invested personal pension (SIPPS) over the last few months. There may well be changes to capital gains tax so it’s really worth using current tax wrappers to your advantage.
Hargreaves Lansdown (HL) clients have been snapping up stocks and shares ISAs ahead of the budget, with the numbers maxing out their allowance up 31 per cent compared to last year. For anything outside a tax wrapper, make use of your current capital gains tax allowance of £3,000. What you may rue though is a hasty decision to sell off a big chunk of assets too quickly. Speculation shouldn’t push you into taking big decisions you wouldn’t ordinarily consider. It’s usually wiser to take a long-term view.
Coming of age
I’m currently negotiating a big trade at home. It’s not just how many techno fans my son can have at his 18th birthday party or how many mojitos I will be making. I’ll be deploying all of my persuasive skills to get him to switch his junior ISA savings into a longer-term tax wrapper, rather than blowing it all on an expensive rig for gigs. What we’ve saved for our kids isn’t a life-changing amount of money, but it could be highly tempting for a wannabe teenage DJ. This is the big dilemma for parents. Once they turn 18, the money saved for kids is theirs for the taking, tax-free.
The latest data shows that parents are starting to save into JISAs for their children at earlier ages. This is super-encouraging, but it’s vital that this habit is accompanied with big chats about the importance of saving and investing for the future. Given how much I’ve been banging on about this, I wouldn’t be surprised to hear my words sampled in one of his tracks. So, hopefully he shouldn’t take too much convincing. Instead, I think he’ll be so surprised at how his money has grown, that he’ll want to keep nurturing that particular pot for longer. The good news is that the vast majority of those with HL JISAs are still invested a year after they mature, so some of this advice is clearly being listened to.
Superdry cries foul on Shein
Browse for any item of clothing right now and Shein will probably top the search results. It’s a global powerhouse, with ranges highly attuned to current catwalk trends at a fraction of rivals’ prices. It’s hardly surprising the business has drawn the ire of Julian Dunkerton, the founder of struggling British retailer Superdry. Shein can drive prices so low, partly because its base overseas means it can avoid import duties on its low-value parcels. Packages worth less than £135 don’t face duties if they’re sent direct to UK customers, in contrast to larger shipments brought in by UK-based chains. It’s another reason to scrutinise the fashion giant’s business model, which has already drawn criticism for its working conditions and environmental footprint.
Shein points out that it complies with UK law but, when the government is desperate to claw back a £22bn overspend, this tax loophole is ripe for filling. This all comes as Shein continues to pursue a London listing. ESG laggards come with significant risks, but there’s an argument that investment opportunity lies in transformation. A Shein listing could make the firm more transparent and accountable to shareholders who could engage with the firm to improve standards.
Quote of the week:
“We’re allowing somebody to come in and be a tax avoider essentially.’’
Superdry’s Julian Dunkerton on Shein
Money beans
As I was sipping my morning coffee, yet another social media pile-on caught my eye. This one was aimed at a press officer who had calculated the annual savings that could be made, if you just brewed your own beverages at home. Ok, it’s not the most original pitch, but the condescension poured over this suggestion was a little over the top. Certainly, forgoing a coffee a day isn’t going to thrust you onto the housing ladder. But small changes can help build a saving and investing mentality. A more meaningful tweak the government could make is reducing the penalty that anyone saving for their first home through a LISA is subject to if they need to withdraw their cash. While the government will contribute an extra £1,000 for every £4,000 saved, if you need to take the cash out for any reason other than a house purchase or pension, the penalty is 25 per cent.
You also have to pay a penalty if you buy a home worth more than £450,000 too, and while that will go a long way in some places, the average London property costs around £520,000, so there’s a good chance some first-time buyers are being forced to pay the penalty too. Raising the property price cap and reducing the penalty to 20 per cent would make a big difference. It would encourage more people to start saving and potentially enable them to shimmy up and out of precarious and wasteful renting once the magic money beans start to sprout.
Susannah Streeter is head of money and markets at Hargreaves Lansdown