Tax Planning

An IFA today could keep the taxman at bay

Most of us don't enjoy thinking about tax. We may grit our teeth when we see the shrunken figure which Government deductions leave at the bottom of our pay-slips, but there seems little point complaining about this. Tax, we assume, is just a fact of life.
And yet, when it comes to your savings and investments, a few easy tax-planning measures can dramatically cut the tax you pay.
Whether we are talking about the money you earn or the money your savings earn for you, the taxman takes as much as £4 in every £10. If you can reduce - or even eliminate - that tax charge, you guarantee a big boost for the returns you and your family get.
Sometimes this can be as simple as buying a tax-sheltered plan instead of an ordinary investment product. Individual Savings Accounts (ISAs), for example, shield your money from both income tax and capital gains tax, and are no more expensive to buy than the taxed investment and deposit accounts which they are built on.
You don't need to be a financial genius to understand the basic principles that make tax-sheltered plans work. But it's important to choose a strategy that suits your own unique circumstances.
The information contained here will help you get to grips with the main issues involved, and The St Davids Partnership can help you decide which of the many options available are right for you.

Prudent tax planners should now be looking at their portfolios

It won't be too long before we have to start thinking about submitting our next Tax Returns, the first deadline being 30 September. However, prudent tax planners should be looking at their portfolios now to ensure that they mitigate any future unnecessary tax payments. Rather than leaving a review to the last minute, why not contact us for a wealth check and let us help you ring-fence your profits.

Here are some suggestions.
VCT and EIS schemes If your attitude towards risk-for-reward is at the higher end of the scale, you might wish to consider venture capital trusts (VCTs) or Enterprise Investment Schemes (EISs). Essentially, VCTs are investment trusts that invest in small, unlisted trading companies. At least 70% of the portfolio of a VCT must be in unquoted companies or companies listed on the Alternative Investment Market or Ofex exchanges. 'Capital invested in a VCT can qualify for 20% tax relief.' Tax breaks In return for accepting this level of risk, VCTs offer tax breaks to all those who retain their investment for at least three years. All profits and income are tax-free and capital invested in a VCT qualifies for a potential 20% income tax relief if investment is made at the launch of the fund. Those who invest at launch can also use the trusts to defer capital gains t x due on previous gains if they reinvest these gains within a VCT. The maximum investment in a VCT in any one financial year in order to receive the 20% tax relief is £100,000.

Substantial assets Enterprise Investment Schemes (EISs) are aimed at the more adventurous investor and offers similar tax breaks to VCTs. The EIS was established to encourage investment in new ventures - which are invariably high risk - so it will appeal only to those with fairly substantial assets. Investors can claim a tax credit of 20% of the amount invested if the shares are disposed of after three years.

Any loss on the disposal of shares can be set against the investor's gains or taxable income in the tax year in which the disposal took place. The annual EIS limit is £150,000 in order to gain 20% tax relief. Secure returns Certain National Savings products offer the low-risk saver some tax-free options, even though the rates of interest are not that exciting. You can put up to £10,000 into each of four issues of savings certificates: - index-linked certificates with a two-year term - index-linked certificates with a five-year term and guaranteed return per annum plus inflation - savings certificates with a two-year term and guaranteed return - savings certificates with a five-year term and guaranteed return. We can advise you of the current rates on request. There is no ceiling on the amount that can be reinvested from matured certificates in new issues.

'This year we can receive £9,600 of gains tax-free.' Capital gains tax (CGT) There is no point in investing if you don't consider the implications of CGT. All of us - including children - are entitled to an annual capital gains tax allowance. This year we can receive up to £9,600 a year of gains tax-free. The exemption is lost if it is not used in the relevant tax year. Husbands and wives, if one partner pays little or no tax, can make use of both CGT alowances by transferring assets between each other.

Inheritance tax (IHT) The inheritance tax nil-rate band is currently £312,000 for 2007/8 rising to £350.000 2010/11, at a rate of 40%. If your estate exceeds the IHT nil-rate band, it is important to consider ways to mitigate a potential tax liability of 40% above this amount or at least help the inheritors of your estate to meet the bill. If applicable, it is advisable to consider making use of your annual tax-free allowances - an individual is entitled to give away £3,000 a year, plus additional amounts in small gifts and wedding presents - and of potentially exempt transfers (PETs). A PET falls out of the inheritance tax net completely if the donor lives for at least seven years after making the gift.

Some of the products and services offered by IFAs may not be regulated by the FSA. The value of investments can go down as well as up. Past performance is no guarantee of future performance.

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