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| 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 next deadline being 31st January 2003.
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| 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. |
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| Here are some
suggestions: |
| Don’t
ignore your PEPs |
If
you hold a Personal Equity Plan (PEP) or
a PEP portfolio, don’t ignore them.
New tax breaks for PEP investors mean that
the wider investment powers attributed
to ISAs have now been extended to PEPs.
Investors are no longer confined to having
just 25% of their portfolio of a general
PEP invested internationally.
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| Under
new rules it is also possible to merge a
general and a single company PEP. And should
you want to spread your holding between a
number of different managers, it has become
possible to transfer part of a PEP to another
manager. |
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| 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.
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| Capital
invested in a VCT can qualify for 20% tax
relief.' |
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| 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. |
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|
Those who invest at launch can also use
the trusts to defer capital gains tax 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.
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| |
| 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. |
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|
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.
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| 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 |
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| 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. |
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| This
year we can receive £7,500 of gains
tax-free.' |
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| 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 £7,500 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 allowances
by transferring assets between each other.
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| |
| Inheritance
tax (IHT) |
| The
inheritance tax nil-rate band is currently £242,000.
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. |
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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.
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For further help and free advice please
email
us.
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