Do you have tax efficient investments?

There are a wide range of investments available and we consider some of the main ones with special tax rules.

1.Individual Savings Accounts

Individual Savings Accounts (ISAs) provide an income tax and capital gains tax free form of investment. The maximum investment limits are set for each tax year, therefore to take advantage of the limits available for 2015/16 the investment(s) must be made by 5 April 2016. An individual aged 18 or over may invest in one cash and one stocks and shares ISA per tax year. The overall total investment is £15,240.

The new Help to Buy ISA offers incentives for those saving for their first home. Available since 1 December 2015, the account enables first-time buyers to save monthly deposits of up to £200, with an opportunity to deposit an additional £1,000 when the account is first opened. The government will then provide a 25% bonus on the total amount invested, including interest, capped at a maximum of £3,000 on savings of £12,000, which is tax free. The bonus can only be put towards a first home located in the UK with a purchase price of £250,000 or less or up to £450,000 in London.

2. Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

Both the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) allow income tax relief on new equity investment (in qualifying unquoted trading companies). For EIS that is 30% relief on investments of up to £1 million and for SEIS up to 50% relief on £100,000. CGT exemption is given on qualifying shares held for at least three years.

Capital gains realised on the sale of any chargeable asset (including quoted shares, holiday homes etc) can be deferred where gains are reinvested in EIS shares.

A capital gain may be relieved potentially saving up to 14% CGT where a qualifying investment is made in the SEIS.

3. Venture Capital Trusts (VCT)

A Venture Capital Trust (VCT) invests in the shares of unquoted trading companies. An investor in the shares of a VCT will be exempt from tax on dividends (although the tax credits are not repayable) and on any capital gains arising from disposal of shares in the VCT. Income tax relief at 30% is available on subscriptions for VCT shares up to £200,000 per tax year so long as the shares are held for at least five years.

If you require any assistance or further information about the above please do not hesitate to contact us on our contact page.  To find out more about the services that we offer, visit our Services page.

Why you should consider pension planning before the tax year end.

There are many opportunities for pension planning but the rules are complicated and there have been significant changes recently so do check the position before making any decisions.

The rules currently include a standard lifetime allowance of £1.25 million. This figure has to be considered when key events happen such as when a pension is taken for the first time. There is also an annual allowance of £40,000 which sets the maximum amount which can be invested with tax relief into a pension fund. The annual allowance includes employer pension contributions as well as contributions by the individual. Any contributions in excess of the annual allowance are potentially taxable on the individual. Due to changes aligning ‘pension input periods’ with the tax year, some individuals may escape a tax charge if annual contributions in 2015/16 are below £80,000 and significant contributions were made before 9 July 2015.

In addition, many individuals may have unused annual allowances from previous years which can be utilised. Where pension savings in any of the last three years were less than the annual allowance, the ‘unused relief’ is brought forward for use in the current tax year. 

Tip 1 – Unused annual allowances are only carried forward for three years but cannot be utilised before the current year’s annual allowance is used up. But once the allowance for the current year is used, the unused allowance from three years prior is used first. Bear this in mind if a substantial pension contribution is being considered.

Tax relief is available on pension contributions at the taxpayer’s marginal rate of tax. Therefore a higher rate taxpayer can pay £100 into a pension scheme at a cost of only £60. An additional rate taxpayer can pay £100 in at a cost of only £55. Indeed for some individuals, due to the complexity of the tax system, the effective relief may actually exceed 45%.

All individuals, including children, can obtain tax relief on personal pension contributions of £3,600 (gross) annually without any reference to earnings. Higher amounts may be paid based on net relevant earnings. There is no facility to carry contributions back to the previous tax year.

Directors of family companies should consider the advantages of the company making employer pension contributions. Additionally, if a spouse is employed the company could make reasonable contributions on their behalf.

From 6 April 2016 the standard lifetime allowance is to be reduced to £1 million. For those with significant pension savings it may be possible to protect an increased pensions entitlement by utilising Fixed or Individual protection. Please contact us for details on our contact page if you require assistance.

From 6 April 2016 the annual allowance will be tapered for those with adjusted annual incomes (including pension contributions) over £150,000. For every £2 of income over £150,000 an individual’s annual allowance will be reduced by £1, down to a minimum of £10,000

Tip 2 Individuals with expected incomes above £150,000 should be considering using their available current year annual allowance and unused allowances from the previous three years.

We would be happy to advise you on your pensions position. If you require any assistance or further information about the above please do not hesitate to contact us on our contact page.  To find out more about the services that we offer, visit our Services page.