John Millican, Managing Director and Financial Adviser
Posted in Tax Planning, VCT & EIS on 25.03.10

End of Year Tax Planning

ISAs

Changes to the annual ISA allowance announced in the last Budget came into effect on 6th October 2009. From that date, people aged 50 or over can now invest up to £10,200 (previously £7,200) per annum into their ISA with a maximum of £5,100 (previously £3,600) available to be invested in a Cash ISA. Those aged below 50 are restricted to the old allowances until next tax year starting on 6th April 2010.

ISAs remain a valuable tool for building up savings in a flexible and tax efficient manner and with higher-rate tax relief on pension contributions being abolished from 2011 for high earners and possibly for everyone in the not too distant future, we would continue to urge clients to make full use of their annual ISA allowances.

Pensions

Although pension rules are changing investors can still obtain up to 40% tax relief on contributions in the current tax year.

As a reminder, individuals can contribute up to 100% of UK earnings to their pension and receive tax relief, up to a annual limit on contributions of £245,000. For those earning more than £150,000 however, the removal of higher rate tax relief from 6th April 2011 and subsequent anti-forestalling measures announced mean that contributions eligible for higher rate tax relief are limited to between £20-30,000 (see the Autumn/Winter Newsletter for more on this.

Capital Gains – Most assets are liable to Capital Gains Tax (CGT) when you sell or dispose of them, whether they’re in the UK or overseas. Some are exempt, such as your car, personal possessions disposed of for £6,000 or less and, usually, your main home. The profit or gain on sale or disposal is taxable at a rate of 18% currently but there is an annual tax-free allowance which allows a certain amount of gains each year before one has to pay tax. Currently this allowance is £10,100 for each individual and £5,050 for most trustees.

Clients with investments showing significant capital gains should consider crystallizing some or all of these gains before the tax-year end as the allowance is annual and lost if not used.

EIS and VCT schemes

Given the Government’s new rules to reduce the tax relief on pensions, particularly for higher earners, any investment which carries income tax relief is, in our opinion, worthy of consideration. Venture Capital Trust schemes (VCTs) and Enterprise Initiative schemes (EIS) are two investments which still carry tax relief for the individual investor.

VCTs are one of the most tax efficient investment products available to UK investors. Assuming investors hold their VCT shares for five years, they are entitled to;

  • 30% income tax relief on investments up to £200,000
  • Tax-free dividends
  • Tax-free capital growth

Clearly, other issues than tax relief must be taken into account, such as the illiquid nature of VCTs and the potentially higher risks. However, given that a number of VCTs now invest to produce a lower but much more predictable return, we feel that they are now an item which should be on the tax planning “items for consideration” list for a any higher rate tax payer.

We’ve recently produced a note (available on the website at www.fiduciawealth.co.uk/bulletins) describing the general features of VCTs and how, for some clients, a combination of VCTs and pensions can achieve double tax relief. This might be appropriate for clients who already have VCTs which have reached their qualifying period of five years or who are considering investing in a new VCT.

EIS schemes have similar but slightly less generous reliefs that VCTs. Assuming investors hold their EIS shares for three years they are entitled to;

  • 20% income tax relief on investments up to £500,000
  • Tax-free capital growth
  • Losses on disposal (less income tax relief) can be offset against income rather than capital gains
  • Deferral of CGT

As always, the issue of personal taxation can be a complex subject and we have only briefly skimmed the surface here, so if you require guidance as to what you should be doing, please do not hesitate to contact us at the Dedham offices.

As a reminder though, the end of the tax year is 5th April and with this being Easter Monday, the last date for doing anything is Thursday 1st April, so time is of the essence.

 

If you would like to know more about how we as Financial Advisers can help you  with your Investments then visit the Investment Management section of  our website: Investment Management or send us email at: email@fiduciawealth.co.uk

The information contained in website is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Fiducia Wealth Management Limited, or any associated companies or persons, its officers or its employees, for any loss occasioned in connection with the content hereof and any such action or inaction. Professional financial advice is necessary for every case.

Fiducia are an award winning firm of Financial Advisers based in Dedham near Colchester situated in the heart of Constable Country on the Essex Suffolk border. www.fiduciawealth.co.uk

Fiducia Wealth Management Ltd. Dedham Hall Business Centre, Brook Street, Dedham, Colchester, Essex, CO7 6AD.

Fiducia Wealth Management Ltd. is authorised and regulated by the Financial Conduct Authority. FCA No. 408210

John Millican, Managing Director and Financial Adviser
Posted in Tax Planning, VCT & EIS on 25.03.10