How well will your investments do under the new Conservative government?
At long last, we have a bit of political certainty back in our lives. Five years of Conservative government to look forward to (some may think otherwise) with a clear mandate to get Brexit done and move on.
Although the personal finance implications of this victory for the Conservatives have yet to impact on our pockets – we need to wait for the Chancellor of the Exchequer’s Budget on 11 March and the start of the new tax year (6 April) for most of that – there is little doubt that there is a renewed optimism out on the streets.
A sense of a new beginning. An end to prevarication and uncertainty – and the start of an era when there will be a renewed focus on making the country’s infrastructure fit for purpose and more spending on the National Health Service. Even my postman is smiling again – and that is no mean achievement – while the newspaper seller I walk past every day to work (Alan) is positively beaming.
Alan is retiring from getting up at 4.30am five days a week and is looking forward to staying a little warmer than he is used to and managing from the comfort of his armchair his rather considerable investment portfolio. His view (and it is one I have come to respect) is that his collection of dividend-friendly shares will do far better under Boris Johnson than they would have done under Jeremy Corbyn.
I think Alan makes a fair point. As someone who believes passionately in everyone’s right to build personal wealth (and pass it on to their heirs), there is no doubt that our investments and pensions will all be the better for having a strong Government in power. We have already seen the pound strengthening and the UK stock market moving ahead on the back of the General Election result.
Some financial commentators are predicting that the FTSE 100 Index – the index of the 100 top UK companies listed on the London Stock Exchange – will end this year a lot higher than it did 2019. I agree, although predicting the future course of stock markets is something of a fool’s game. I am more comfortable saying the FTSE 100 will be higher in December 2024 (the next General Election date) than it is now. ‘Think long term, not short term’ is my personal finance motto.
What can be said with greater certainty – and this is astute Alan’s point – is that the stock market has more chance of advancing now than it would have done under a Labour Government.
Although Labour had some good manifesto ideas, its wish to jack up tax rates on both capital gains from share disposals and on dividend income would have dealt a major blow to private investors. Similarly, its intended paring back of the annual tax-free allowances available to shelter capital gains and dividend income – currently set at £12,000 and £2,000 respectively – would have made it very difficult for investors to manage their portfolios efficiently. It is also likely that Labour would have sought for the Government more of any wealth we inherit, while hitting second-homeowners and buy-to-let landlords with extra taxes.
Under the Conservatives, the tax regime on investing (share and property related) is likely to remain more benign than it would ever have been under Labour, but don’t rule out further tax changes. After all, past Conservative governments do have history in gently restricting the tax breaks to investors. A little tickle here, a little tickle there.
Against this political backdrop, I will be looking to invest as much as I can over the next five years via a tax-friendly Individual Savings Account (ISA). Although I don’t have the financial firepower to use the whole of my permitted annual ISA allowance of £20,000 a year, I will try to squirrel away as much as I can every month without compromising my lifestyle too much. After all, like most people, I do have my vices – I love my cinema, theatre and regular trips to Bramall Lane and The Hawthorns, respective homes of Sheffield United and West Bromwich Albion football teams. And remember, a new ISA annual allowance will kick in from 6 April, so even more scope to build a bigger tax-free portfolio for the future.
One unknown is whether the Government intends to look at the rules surrounding pension saving in the near future. Although it has agreed to address some of the pension issues impacting adversely on high-earning doctors, it should be bolder and look to empower more people to save for later life, doing away with some of the allowances and petty rules that make pensions a financial minefield.
If it did that, I would go to Level 72 of The Shard in London – the open-air viewing gallery – and shout: out loudly: “Hip, hip, hooray.”
Jeff Prestridge is the personal finance editor of The Mail on Sunday. Email him at firstname.lastname@example.org.