Forget a double whammy. We are in for a quadruple whammy very soon.
What am I talking about? The four imminent threats are energy price increases, interest rate rises, taxation increases and inflation rises. These are very real threats to your wealth which you should tackle as soon as possible.
So what should you do about it?
The government cap on how much energy companies can charge will end on 1 April. This isn’t an April Fool’s joke. Prices are set to rise by 54% for many consumers. This is no laughing matter.
In the short term, there is little you can do about it but Martin Lewis of moneysavingexpert.com has recommended opting for the variable price rate currently as the fixed-rate deals are poor value for money at the moment and energy prices are likely to fall from their current high levels.
In the longer term, you should seriously consider installing solar panels unless you already have them of course. In addition, you might like to consider installing a battery to store the energy you produce. A client of ours has done this and he claims his electricity bills are now extremely low. Worth considering.
When interest rates rise it is best not to invest in assets such as corporate bonds and government securities because their values will fall inevitably. A rise in interest rates to just 2.5% could lead to bond prices falling by 30%. So reduce or eliminate your investment in bonds.
Final salary pension transfer values will also fall especially if interest rates rise by 2-3%. A similar fall in values to that of bonds wouldn’t be at all surprising if this were to happen. So if you are seriously considering transferring your final salary pension scheme just be aware of this as it will no doubt affect your decision.
If you have a mortgage consider switching to a 5 year fixed rate at about 2%. Based on current CPI inflation of 5.4% you will be repaying your mortgage with depreciated money hence you will be saving money in real terms (inflation adjusted).
Employer’s and employee’s National Insurance will rise by 1.25% each in April and dividends will be taxed an extra 1.25%. It may not sound much but percentage wise these are very large increases.
If you run your own business limit your salary to £8,000 a year and pay yourself dividends. Pay as much as you and your company can afford before 5 April to avoid the dividend tax increase.
If you are employed and you are due a bonus, ask your employer to pay it to you before 5 April.
You can change your car to an electric one which is far cheaper to maintain than a diesel or petrol car. If you are lucky enough to be given a company car, make sure it is a 100% electric car (zero CO2 emissions) then the benefit in kind taxation is extremely low at 1% of the value of the car when it was first registered.
Do bear in mind that if your overall taxable income is above about £50,000 a year you will pay higher rate tax which will negate the NIC savings.
Tax shelter as much money as you can into tax advantaged investments such as pensions and ISAs which receive dividends tax-free.
Inflation is soaring and it is about to get even worse.
In respect of your investments, it is best to invest in real assets such as property, shares, commodities, gold etc when inflation rises as these assets are historically good hedges against inflation.
As for expenditure it is difficult to avoid rising prices altogether but you can always adjust your spending and lifestyle even if it is only for a temporary period of time. Remember everyone has a personal inflation rate. You can reduce your spending on highly inflated items for example. You can reduce your spending altogether. Economise until inflation subsides then spend more.
As mentioned above you can change your car to an electric one which is far cheaper to maintain than a diesel or petrol car. It will cost far less to own and run if it is a company car too.
Solar panels and a battery will substantially reduce your electricity costs too.
Apart from reducing expenditure you can also increase your income so consider creating second incomes or side hustles as they are now known. Concentrate on passive income such as from rent, dividends and business.
Don’t let these four threats get you down. Create your own plan and action it. You know it makes sense.*
*The Financial Conduct Authority does not regulate tax advice. You should remember that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation and regulations in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.