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So What’s All This About Adviser Charging

29 Apr

Okay, I think it is important to talk about this. From the beginning or 2013, how advisers charge for the services provided has changed; and the service provided has now changed. There is now Independent or Restricted Advisers.

There has been so much focus on what is paid and the general terms are typically, either an hourly rate (average from what I can see around £175 per hour) or where investment advice takes place it’s typically 3% initial (based on the investment amount) and an ongoing servicing fee circa 1.0% (but some institutions will charge more and few less).

business man writing investment concept or investment plan on white board Stock Photo - 13224684

Personally, I believe the big issue is - a fair price is charged for the work done or being done -  what you receive for what you pay. Should Restricted Advice charge the same as Independent Advice? The answer to this is in the detail – so what is the difference?

What is Independent Advice?

The rules set out a new definition for independent advice, which is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market. This is designed to reflect the idea of genuinely independent advice being free from any restrictions that could affect their ability to recommend whatever is best for the customer. To reflect the range of products that a consumer would expect an independent firm to have knowledge of, and in line with work the European Commission has undertaken.

What is Restricted Advice?

This advice that is not independent and will need to be labelled as restricted advice; for example, advice on a limited range of products or providers.

Where a firm providing restricted advice chooses to limit their product range to certain range of investments or providers, there will be clients for whom this is not suitable. It is not acceptable for a firm to make a recommendation for a product that most closely matches the needs of the consumer, from the restricted range of products they offer when that product is not suitable.

I am an Independent Financial Adviser and have specialised in investments and tax planning with the focus on a high level of service, expertise and support. My view on the argument between the different advice type is simple but then again I am very technically focused targeting tax mitigation and investment returns, profitability and success.

My question to you is should you, as the consumer, pay the same for a Restricted Service as for an Independent Service? 

The first point is be aware of the service being provided – make sure if you are paying for the service being provided and in my opinion that should be a fully comprehensive service. Restricted advice is simply that “Restricted” and Independent is “Independent”. An IFA - Independent needs to take into consideration all available contracts, both packaged and unpackaged, available in the UK Markets – assess, consider, review and recommend from every available structure; whereas a Restricted Adviser will sell you a contract from their permitted range.

Clearly, the time and effort and expertise required under both designations should carry a cost reflective to the service provided. I personally believe that the charge for Restricted Advise should be the less expensive option. It seems that many institutions are not differentiating – I assume they are hoping/expecting the consumer not to notice the difference.

Perhaps also worryingly, a number of institutions and banks have declined to disclose their adviser charges with some saying they would not make their limits public (as reported by Citywire, Investment Adviser, Money Marketing, The Telegraph, Financial Times, amongst others).

Of those who have disclosed mandated adviser charges, there is a typical initial charge of around 3% with ongoing charges ranging up to 3% per annum.

I did think of putting together a list of the institutions and the fees paid but felt that this is not constructive. I believe it is wiser to weigh up the pros and cons of what is being offered and the price you are being asked to pay.

Remember, now you agree to a contractual fee arrangement and as with all contracts the terms are binding both ways. If you are paying for annual reviews, on-going investment advice, portfolio stress-testing and your adviser is remunerated relative to their level of success….make sure you get what you pay for. I know my clients do…and it creates very close and personal relationships where my financial interest and their financial success are aligned i.e. I need my clients to be successful and see positive returns on their investments.

All I suggest is take care and consider your options – what you receive for what you pay.

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Launch of Waverley Court Consulting Ltd – Website www.waverleycc.co.uk

18 Dec

I am pleased to announce the launch of my website - http://www.waverleycc.co.uk

After much work, reviews, re-writing and editing my website is now live. Let me know your thoughts on the content, design and presentation. Personally, I am most pleased with the Testimonials sections – every one who kindly provided their comments presented their views of our relationship.

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The Launch Of My Corporate Website

11 Dec

We are almost there !!!

I expect within a few days my website will be up and available.

The official corporate Financial Services site for Welshmoneywiz is Waverley Court Consulting Ltd.

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Autumn Budget Statement

10 Dec

You have to give George Osborne his dues…we all knew there were failings in the assumptions from the Summer Budget. He didn’t duck the bullet. Rather than just guidelines and review of the Summer Budget (normally what seems to be the Autumn Budget), it was more an introduction to the Spring Budget 2013, giving details of  some of the fiscal changes ahead.

A benefit of knowing about tax policy to be introduced from a future date is, it gives us a chance to plan now.

Registered Pension Schemes

George Osborne made proposals to cut back on the tax advantages of registered pensions.

The bad news :-

• Annual allowance to be reduced from £50,000 to £40,000 from tax year 2014/15.
• Lifetime allowance to be reduced from £1.5m to £1.25m from 2014/15

The good news :-

•  Allowances to remain unchanged for 2012/13 and 2013/14 (at up to £50,000)

• Carry Forward remains unchanged for tax years 2010/11, 2011/12, 2012/13 and 2013/14 (at up to £50,000)

• Fixed protection available – enabling benefits to be taken up to the greater of the standard lifetime allowance and £1.5m without any lifetime allowance charge

1.  Election by 5 April 2014

2.  Protection lost where further accrual/contributions on or after

      6 April 2014

• Personalised protection option – a possible additional transitional protection

1.  Provides a lifetime allowance of the greater of the standard lifetime

     allowance and £1.5 million, but without the need to cease

     accrual/contributions on or after 6 April 2014.

2. Available to individuals with pension benefits with a value of at least

     £1.25 million on 5 April 2014.

• Maximum capped drawdown income to be increased from 100% to 120% of the relevant annuity rate determined from the GAD tables – date to be confirmed.

Planning Opportunities

The reduction in the annual allowance was expected and was only to £40,000 (it could have been worse). The reduction doesn’t apply until tax year 2014/15. Carry Forward of unused annual allowance of up to £50,000 for each of tax years 2010/11, 2011/12, 2012/13 and 2013/14, is available.

It gives a high earners the chance to maximise contributions before the reduction in the allowance bites. Also, for very high earners, if action is taken before the end of this tax year, they may be able to secure the 50% tax relief.

The changes to the lifetime allowance will mean that any one likely to be affected by the reduction and looking to retire in the near future will need to consider all means to reduce/avoid any lifetime allowance charge. This includes :-

  • Electing for fixed protection and/or, if available, personalised protection.
  • Considering drawing some or all of their benefits in 2012/13 or 2013/14 when these will be set against the current £1.5 million lifetime allowance.
  • Consider how benefits are taken.

Income Tax

So, it seems fair to say, there is actually only a very small change in the potential tax bill payable. Personal allowance has increased and the basic rate band has shrunk. The unlucky few are worse off but in most cases the situation seems to either be neutral or possibly a slight improvement.

The personal allowance is to increase by £1,335 to £9,440 in 2013/14 – an improvement in the terms announced in the Summer Budget.

In 2013/14, the basic rate tax limit will reduce from £34,370 to £32,010. This is offset by the increased personal allowance.

The result of these changes is that all taxpayers who are fully entitled to a personal allowance (where net income is less than £100,000) will be better off. At the lower end, the extra increase in the personal allowance will lift a quarter of a million people out of tax altogether.

From 6 April 2013, additional rate income tax will reduce from 50% to 45%. This rate applies for those who have taxable income of more than £150,000. For those affected, there is an incentive to make investments before 6 April 2013 and defer the resultant income until after that time.

In terms of planning for married couples/registered civil partners, this will mean that:

• There is scope to shelter income from tax if a higher/additional rate taxpayer is prepared to transfer income-generating investments (including possibly shares in a private limited company) into a non-taxpaying spouse’s name

• There is an incentive for lower rate taxpayers to make increased contributions to registered pension plans with a view to ensuring that any resulting pension income falls within the personal allowance.

Age Allowance

As the personal allowance increases, the age allowance is gradually being phased out. The amounts of age allowance are frozen at £10,500 for those born between 6 April 1938 and 5 April 1948 and £10,660 for those born before 6 April 1938.

For those who satisfy the age conditions, the age allowance is still currently worth more than the personal allowance. However, the allowance is cut back by £1 for each £2 of income that exceeds the income limit. The income limit will increase from £25,400 to £26,100 in 2013/14.

For those who are caught in this income trap, you should take appropriate planning i.e. reinvesting income-producing investments into tax-free investments (ISAs, VCTs, EISs, SEISs) or possibly tax-deferred investments (single premium bonds) or by implementing independent taxation strategies.

Business Tax

The Government will reduce the main rate of corporation tax by an additional 1% in April 2014 to 21% in April 2014.

The small profits rate of corporation tax for companies with profits of less than £300,000 will remain at 20%.

The capital allowance known as the Annual Investment Allowance will increase from £25,000 to £250,000 for qualifying investments in plant and machinery for two years from 1 January 2013. This is designed to encourage and incentivise business investment in plant and machinery, particularly among SMEs.

A simpler income tax scheme for small unincorporated businesses will be introduced for the tax year 2013/14 to allow:

Eligible self-employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. Businesses with receipts of up to £77,000 will be eligible and will be able to use the cash basis until receipts reach £154,000. They will generally not have to distinguish between revenue and capital expenditure.

All unincorporated businesses will be able choose to deduct certain expenses on a flat rate basis.

Tax Avoidance and Evasion

As expected the Government unveiled a bundle of measures aimed at countering tax avoidance and tax evasion.

Areas of particular interest are:-

•  The introduction of the General Anti-Abuse Rule. This will provide a significant new deterrent to people establishing abusive avoidance schemes and strengthen HMRC’s means of tackling them. Guidance and draft legislation will be published later in December 2012;

•  Increasing the resources of HMRC with a view to:

•  Dealing more effectively with avoidance schemes

•  Expanding HMRC’s Affluent Unit to deal more effectively with taxpayers with a net worth of more than £1 million

•  Increasing specialist resources to tackle offshore evasion and avoidance of inheritance tax using offshore trusts, bank accounts and other entities, and

•  Improving technology to help counter tax avoidance/evasion

•  Closing down with immediate effect for loopholes associated with tax avoidance schemes.

•  Conducting a review of offshore employment intermediaries being used to avoid tax and NICs. An update on this work will be provided in the Budget 2013.

•  From 6 April 2013 the Government will cap all previously unlimited personal income tax reliefs at the greater of £50,000 and 25 per cent of an individual’s income. Charitable reliefs will be exempt from this cap as will tax-relievable investments that are already subject to a cap.

Inheritance Tax

The inheritance Nil Rate Threshold is to increase, although by only 1% in 2015/2016 to £329,000. Currently, the Nil Rate Threshold is £325,000 and has been frozen since 2009 until 2015. This means, from 6 April 2015, if the first of a married couple to die does not use any of his/her nil rate band, then the survivor will have a total nil rate band (including the transferable nil rate band) of £658,000.

We await the outcome of the consultation on the taxation of discretionary trusts which is due to be released in December. Hopefully this will incorporate some simplification to the current complex system.

Capital Gains Tax (CGT)

The CGT Annual Exemption (£10,600 in 2012/2013) will increase to £11,000 in 2014/2015 and £11,100 in 2015/2016. We do not know what it will be in 2013/14.

Gains that exceed the annual exempt amount in a tax year will continue to be subject to CGT at 18% and/or 28% depending on the taxpayer’s level of taxable income.

Trustees pay a flat rate of 28% on gains that exceed their annual exemption.

Individual Savings Account

The current maximum investment in an ISA is £11,280 in a tax year (maximum of £5,640 in cash). With effect from the tax year 2013/2014, the maximum will increase to £11,520 (with the cash content not to exceed £5,760). Use of the allowance should always be maximised as any unused allowance cannot be carried forward.

The Junior Isa and Child Trust Fund maximum annual contribution limit will move from £3,600 to £3,720 from 6 April 2013.

The Government will consult on expanding the list of Qualifying Investments for stocks and shares ISAs to include shares traded on small and medium enterprises (SMEs) equity markets such as the Alternative Investment Market and comparable markets. This could lead to ISAs becoming even more appealing as a tax shelter.

Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS)

The rule changes, mostly approved months ago, revolved mainly around opening up more companies for investment from VCTs and EIS, and increasing how much can be invested.

The size of companies that the schemes can invest in has been increased from £7 million to £15 million and the number of employees from 50 to 250.

The limit on the amount an individual can invest in an EIS has increased from £500,000 to £1 million, while the amount an EIS or VCT can invest in an individual company has increased to £5 million.

Ian Sayers, director general of the Association of Investment Companies (AIC), commented, ‘The proposed rule changes allow VCTs to invest in a wider range of companies which is a welcome boost to the sector and businesses desperately seeking finance.

‘The Chancellor’s removal of the £1million limit on VCT investment in a single company will ensure more efficient support to smaller businesses in the UK.’

However, the Budget also finalised plans to subject VCTs and EIS to further scrutiny in relation to the investments that they make.

The government will introduce a ‘disqualifying purpose test’, designed to exclude VCTs or EIS that do not invest in qualifying companies and are set up solely for the purpose of giving investors tax relief.

Although the schemes escaped any changes to their individual tax benefits, the Budget introduced a cap on tax relief, in an effort to prevent high income taxpayers getting away with very low tax rates.

The new rules will set a cap of 25% of income on anyone seeking tax relief of over £50,000 but, while the proposals are not particularly clear, it appears EIS and VCTs will be exempt.

Paul Latham, managing director of Octopus Investments, explained, ‘The good news is that the government’s new cap only applies to tax reliefs which are currently classed as “unlimited”. This means that tax-efficient investments, such as EIS and VCTs, are unaffected by this legislation.’

 

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HMRC Crack Down on Tax Avoidance Schemes

22 Aug

HMRC has won, subject to appeal three court decisions against tax avoidance schemes. These cases are expected to provide the Exchequer with £200 Million.

The message is clear – when planning to minimise tax, ensure you use the rules that exist, take advantage of government backed schemes (eg personal pensions, ISAs, VCTs, EISs, AGR & BPR related schemes) and use accepted approaches within the flavour of the law – take professional advice. The cases in question are high value high – profile and are out of the remit of the general investor but the ethos of HMRC is clear.

HMRC Letter 480

HMRC have stated that this sends “a very clear message” that it will tackle efforts to avoid paying tax.

The first case, against ‘Schofield’ and heard in the Court of Appeal on 11 July, involved a business owner using a tax avoidance scheme to create an artificial loss on his sold business, even though it had actually made him a £10m profit. HMRC said he paid £200,000 to be involved in the scheme.

Another case against Sloane Robinson Investment Services, heard in the First Tier Tribunal on 16 July, saw the company’s directors attempt to avoid a combined £13m worth of tax on their bonuses. The First Tier Tribunal ruled the scheme, even once it had been modified to counter recently introduced anti-tax avoidance legislation, did not work.

In the final case, against ‘Barnes’ in the Upper Tribunal on 30 July, a scheme aimed at exploiting a mismatch between two tax regimes on behalf of more than 100 individuals failed to work. HMRC said some £100m was at stake as a result of this scheme.

HMRC director general of business tax, Jim Harra, said: “These wins in the courts are a victory for the vast majority of taxpayers who do not try to dodge their taxes. They send a clear message to tax avoiders – HMRC will challenge tax avoidance relentlessly and we will beat you.

“We have now had three major court successes in avoidance cases in the last month alone and I hope this sends a very clear message: These schemes don’t come cheap, you carry a serious risk that you’ll end up paying the tax and interest on top of a set-up charge which can run into the hundreds of thousands of pounds.

“These were complex cases which show HMRC’s experts doing what they do best, delivering great results for the UK.”

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VCTs & EISs – Clampdown If Just Targeting Tax Relief

21 Mar

George Osborne confirmed the government will roll out a new disqualifying purpose test to exclude companies set up for the sole purpose of accessing tax relief.

 The purpose of VCTs and EIS’ is to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies, as opposed to taking advantage of the generous tax breaks on offer.

The consultation will come as a blow to some feed-in-tariff VCT and EIS providers. The Government will also introduce a new disqualifying purpose test to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares by a qualifying company in another company, and exclude investment in some Feed-in Tariff businesses.

The good news :-

VCTs

  • from April 2012 the investment universe for VCTs (Venture Capital Trusts) will be widened. 
  • £1.0 Million investment limit per company rule has been lifted
  • VCTs will have the option to invest larger (actually unrestricted amounts) into a small business

EISs

  • EIS tax relief allowance to be doubled to £200,000.

 

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Seeking Advice

18 Mar

I have been asked by many, the best way to contact me if you are seeking advice?

The easiest is by the blog email :- welshmoneywiz@virginmedia.com, or my business email :- dnathan.jpl@ntlworld.com or darren@jpltd.co.uk

Or call my office :- 029 2020 1241

Or my mobile :- 07931 388651

Or to follow me  -

On twitter :- Welshmoneywiz

On Linkedin :- Darren Nathan

All the best

Darren

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Wealth Accumulation, Retirement Planning and Family Commitments

27 Feb

I was recently asked how much should I save and how much is enough?

The simple anwer is, whatever you can afford – save and in my book that means invest. The exception is a pot of cash for unexpected eventualities and known commitments.

The whole idea of saving and investing is for money to grow in value at a greater rate than inflation, otherwise in real terms you are losing money. What you think of as your target growth rate and risk profile is a personal matter.

You must be realistic and be aware that the higher the possible returns, the more risk and volatility you will be requested to accept. Also, more risk does not automatically mean higher returns. What it means is more risk the higher range of returns, so you could lose or gain more but there are no guarantees. My role as your financial adviser is to guide, inform and advise you on this as it will have a serious effect on the potential outcome. So, planning, reviews and planning agian is paramount.

So where to start?

OK, this may well be different depending your stage of life.

Pre-retirement is all about accumulating wealth for self (you and possibly spouse) and family.  You need to accumulate for when one day you stop working, so in most cases this is Pension Planning, ISAs, EISs, VCTs, Collectives amd possibly Investment Bonds; and of course the clearing all debts. This is so, when children go to University, need a deposit for their first flat, get married, first car, start a buiness or whatever else then, as with all us parents, we help. And one day, when it’s time to retire, we have sufficient wealth to support and fund the rest of our lives to the standard we had planned.

There are two key important factors, firstly you only get what you put in; and secondly, you need to make sure whoever looks after your investments help them to grow. We are talking effective wealth management. If you only hear from people annually or worse, never then it is fair to say they aren’t managing but they maybe being paid for the “service” they are not providing.

Post-retirement is all about wealth preservation with the target of sustaineable and growing income over time but most importantly protecting the underlying value of the investments.

The key factor being, you need to make sure whoever looks after your investments takes a suitable approach/strategy to help sustain and hopefully grow the investments. You will recognise this comment from above – we are talking effective wealth management. If you only hear from people annually or worse, never then it is fair to say they aren’t managing but they maybe being paid for the “service” they are not providing.

Here are some simple concepts :-

If you invest £500 per month and just make 5% per annum, compounded annually :-

  • 20 years - you would have invested £120,000 and be valued at £203,728.89
  • 25 years – you would have invested £150,000 and be valued at £294,060.44
  • 30 years – you would have invested £180,000 and be valued at £409,348.92

If you invest £3,000 per month and just make 6% per annum, compounded annually :-

  • 10 years - you would have invested £360,000 and be valued at £489,792.87
  • 20 years – you would have invested £720,000 and be valued at £1,366,937.30
  • 30 years – you would have invested £1,080,000 and be valued at £2,937,769.39

If you invest £100,000 and just make 5% per annum, compounded annually :-

  • 5 years - valued at £127,628.20
  • 10 years – valued at £162,889.50
  • 20 years – valued at £265,329.80

If you invest £500,000 and just make 6% per annum, compounded annually :-

  • 3 years - valued at £595,508.00
  • 5 years – valued at £669,112.80
  • 10 years – valued at £895,423.80

All you need now is your investment adviser to make in excess of 5% or 6%, to make these figures come true. Also, if we look at the last decade, the figures could be far superior to these.

Should you have any questions or want my help, my email address is :- welshmoneywiz@virginmedia.com

 

 

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Tax Planning Before The End of the Tax Year – 5th April 2012

16 Feb

5 April 2012 Tax Planning

With the end of the UK tax year approaching, review your business and personal finances to ensure they are as tax-efficient as possible.

Consider reducing taxable income, creating Reliefs to off-set tax bills, and/or deferring distributions to take advantage of year end dates, for example: 

  • by making pension contributions
  • claiming tax relief through investing in Enterprise Investment Schemes (EIS) & Venture Capital Trusts (VCT)
  • converting investments in non-tax assessable investments for the future – ISAs
  • donating to charity
  • transferring income producing assets to a spouse or civil partner
  • delaying bonus or dividend payments

 

1. Pension Contributions and Retirement Planning

Make pension contributions allows you to enjoy tax breaks on your pension savings. There are tax reliefs as you invest and a tax-free regime for your savings. Your employer may also be able to contribute and obtain tax relief.

The Basics :-

  • For the 2011/12 tax year individuals can contribute up to £50,000 into their pension.
  • Those who have not contributed the full £50,000 in any of the previous three years may be able to pay increased amounts prior to 5 April 2012.
  • Individuals with no earnings can contribute up to £2,880 into pension funds, and the government will gross this annual up to £ 3,600. This can be effective for children and spouses.
  • The lifetime allowance is being reduced to £1.5 million from £1.8 million from 6 April 2012. Individuals should review if any actions need to be taken before 5 April 2012
  • For pension contributions to be applied against 2011/12 income they must be paid by 5 April 2012.
  • Tax relief is available on annual contributions limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings, but subject also to the annual allowance. Pension contributions can be made at up to 100% of relevant earnings, subject to the annual allowance of £50,000.
  • Unused allowances (up to £50,000 per year) may be carried forward for up to three years. Unused allowances from 2008/09 will be lost unless used by 5 April 2012.
  • From October 2012, employers will have to enrol all eligible workers into a qualifying pension scheme. Auto-enrolment is being phased in, on a staged basis. In the 2011 Autumn Statement, the starting deadline for employers with fewer than 50 workers was deferred until the start of the next Parliament.

2.  Investments with Tax Shelters

This typically involves Enterprise Investment Schemes (EIS) or Venture Capital Trusts (VCT). Both are Government-sponsored arrangements designed to reward investors who risk capital in qualifying companies. Investment can be direct, managed portfolios and restricted mandate portfolios. These investments are higher risk by nature, so this risk can be diversified by investing across a range of qualifying schemes (managed portfolio) and/or with a defined mandate (possibly further diversifying risk by defining the strategy)

2.1  The Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

This document provides a very broad overview for potential investors. It does not cover all the detailed rules, so investors should not proceed solely on the basis of this information, and should seek professional advice.

The information relates only to shares issued on or after 6 April 2009.

It does not cover the legislation relating to shares issued before that date. Also readers must bear in mind that the Reliefs and legislation relating to them may change in the future.

The current Tax Reliefs available for qualifying investors are:

  • 30% Income Tax Relief – on equity investments up to £500,000 per tax year (£1 million from 6 April 2012) in eligible companies. The relief can also be carried back one year. To retain the Tax Relief, the shares must be held for at least three years
  • Capital Gains Tax Exemption - if it is held for at least three years from the date of purchase (same qualification as for the Income Tax Relief), any gain is free from Capital Gains Tax.
  • Capital Gains Tax Deferral Relief - it is available to individuals and trustees of certain trusts. The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. (The gain can be from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.)
  • Loss Relief – if the shares are disposed of at a loss, you can elect the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed (or any income of the previous year), instead of being set off against any capital gains.
  • Inheritance Tax Relief – by investing in companies that also qualify for Business Property Relief, investments can be exempt from Inheritance Tax after two years (from the point at which the investment into the underlying company is made). In order to qualify, the investments must be held at the time of death.

 

2.2  Venture Capital Trusts (VCTs) 

Venture Capital Trusts (VCTs) were introduced by the government in 1995 to encourage individuals to invest in small UK companies. They are supported by a number of tax incentives which reflect the fact that investment in smaller and unquoted companies is likely to involve a higher degree of risk.

The current Tax Reliefs available for qualifying investors are :-

  • 30% Income Tax Relief – on amount subscribed for shares issued in the tax year and up to £200,000 per tax year. The shares must be new ordinary shares and must not carry any preferential rights or rights of redemption at any time in the period of five years beginning with their date of issue. You can get this Relief for the tax year in which these ‘eligible shares’ were issued, provided that you subscribed for the shares on your own behalf, the shares were issued to you, and you hold them for at least five years.
  • Tax Free Dividends - exempt from Income Tax on dividends from ordinary shares in VCTs
  • Capital Gains Tax Relief - you may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares.

3.  Tax Efficient Savings and Investments

ISAs: You have until 5 April 2012 to make your 2011/12 ISA investment of up to a maximum of £10,680 (up to £5,340 can be invested in cash). 16-18 year olds can invest up to £5,340 only in a cash ISA.

The new Junior ISA, for those aged under 18 who do not have a Child Trust Fund account, allows investment of up to £3,600 in 2011/12.

4.  Don’t waste Personal Allowances 

4.1  The ‘income tax-free’ personal allowance for 2011/12 is £7,475. Take steps now to ensure you fully use it.

If your spouse or partner has little or no income, transfer income to them to ensure that personal allowances are being utilised. Similarly, it is costly for one spouse or civil partner to be paying tax at 40% or even 50% while the other pays tax at only 20%. Equalising income where possible ensures that you both pay tax at the lowest possible rate, thereby reducing the overall combined tax bill.

The personal allowance is gradually withdrawn where adjusted net income exceeds £100,000 (being reduced by £1 for every £2 of income over £100,000) and is lost completely once income reaches £114,950.

4.2  Capital Gains Tax

All individuals have an annual gains exemption up to £10,600. Married couples should therefore consider transferring assets between spouses prior to sale in order to potentially take advantage of two exemptions i.e. £10,600 each.

4.3  Inheritance Tax

Utilise your Inheritance Tax (IHT) Exemptions. Inheritance Tax is currently payable at 40% on total assets exceeding £325,000 at death. This threshold is per person and has been frozen until 2015. Early planning is therefore essential in order to minimise your liability to Inheritance Tax.

Transfers to a spouse or civil partner remain exempt (Inter-Spousal Exemption). A reduced Inheritance Tax rate of 36% will apply from 6 April 2012 to death estates, where 10% or more of the net estate is left to charity.

£3,000 annual exemption for gifts remains available to all individuals and can be carried forward one year if not utilised. There is also an unlimited small gifts exemption of £250 per beneficiary each year, gifts to registered charities, gifts out of net income, amongst others.

The exemption for regular gifts out of income is one which should be usefully reviewed at the end of each tax year. Payments into life policies for the benefit of others can be a useful way of utilising this exemption. Where pure cash gifts are involved, evidence should be kept of the intention of the donor to maintain a regular pattern of gifts and also to confirm that the amounts given are within the individual’s excess income for the relevant year.

Your Inheritance Tax Planning strategies may also include maximising Reliefs, utilising both exempt, potentially exempt and lifetime chargeable transfers, and making the most of trusts.

5.  Business Allowances

5.1  Capital Expenditure - The majority of businesses are able to claim 100% Annual Investment Allowance (AIA) on the first £100,000 of expenditure on most types of plant and machinery (except cars) 

Changes to Capital Allowances :-

From April 2012 the amount of expenditure on plant and machinery qualifying for a 100% year one write-off (via the AIA), reduces from £100,000 to just £25,000.

For businesses with years straddling 31 March/5 April, there will be a transitional AIA and writing down allowance.

 

5.2  Enterprise Zones

Announced in the Autumn Statement, the Enterprise Zones in assisted areas will qualify for enhanced capital allowances. These allowances will be available from 1 April 2012 to 31 March 2018.

 

5.3  The Family Unit

Family businesses should consider paying all members who are involved in the business an income so they can use their personal allowances but optimises income for State Pension purposes.

Where there is a partnership or the spouse is a shareholder in the family company, there is more scope to spread the tax burden between the couple.

At an income level where one spouse is already receiving income in excess of £150,000, there will be a tax saving by transferring outright (or perhaps into joint names) investments to the other spouse whose income is below that level.

More interesting are shares in family trading companies. Provided an individual holds at least 5% of the shares in such a company and is an employee, a married couple can potentially double up on Entrepreneur’s Relief for Capital Gains Tax purposes.

Children also have their own personal allowances and, where there are family discretionary trusts, consideration should be given to distributions to utilise personal allowances and lower bands of tax.

 

WITH ALL OF THE ABOVE, PLANNING IS ESSENTIAL TO TAKE BEST USE OF THE TAX SYSTEM.

GOOD LUCK WITH YOUR PLANNING.

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