Strategic tax planning
Making the right decisions about the structure of your investments, from a tax perspective, can be as important to your overall wealth as the choice of who manages them.
At the most basic this means making the most of your New ISA allowances and, where this is aligned to your long-term financial plan, maximising the benefit of the tax relief available on pension contributions (while taking care not to breach the Treasury’s lifetime limit on pension fund size).
For many clients, though, the limits on the size of contributions to these products mean that other vehicles will also be necessary in order to maximise the efficiency of their portfolios.
One of the most popular of these is the offshore bond. Although tax is payable when withdrawals are made from these wrappers, capital gains tax is “rolled up” until the point of withdrawal – the effect of this is beneficial to capital growth.
Each individual also has an annual capital gains tax allowance of £11,000 (2014/15) so it is important both to use this to its fullest advantage and to ensure that assets are divided appropriately between spouses or civil partners to maximise the benefit of both parties’ allowances.
In general, where one spouse or civil partner pays income tax at a lower marginal rate than the other, it makes sense to transfer income generating assets between them in order to minimise the overall tax bill.
Whether you hold your investments directly or through a unit trust will also have an impact on your capital gains tax bill – and advice should be sought as to the most appropriate structure for your circumstances.
Individuals are also entitled to claim “entrepreneurs’ relief” on the disposal of assets of companies in which they have an ordinary shareholding of more than five per cent. This relief reduces the rate of capital gains tax from 28 per cent (upper rate 2014/15) or 18 per cent (lower rate 2014/15) to 10 per cent on the first £10 million of qualifying capital gains so, with appropriate planning, it is possible for a couple to pay just ten per cent tax on up to £20 million of the proceeds of a business sale or sales.
It isn’t just where you put your money that matters – how you take it out can be equally beneficial, or detrimental, to your wealth.
How withdrawals from bonds are structured, for instance, can make a big difference to your tax bill. How you structure pension income, meanwhile, is a complex topic that can, if done correctly, have a major impact.
These are just a few of the more common considerations for investors who don’t want to see their investment gains wiped out by unnecessary tax bills.
To discuss the structure of your investments with Clarion Wealth Planning’s highly qualified team please call 01565 653804 or send us an email.