Tax planning

The taxing of funds, of income and upon the sale of assets can have a significant impact upon one’s overall wealth and the benefit it derives.

Mitigating tax and diversifying risk

Conventional structures such as ISAs and pensions offer extremely generous tax treatment but increasingly these allowances are reducing for higher earners and the wealthy. There are however a number of other attractive tax advantageous vehicles that help to mitigate tax and diversify risk.

Tax allowances and reliefs

A comprehensive understanding of the available reliefs and allowances enables our advisers to construct a client’s portfolio to best effect. This may include loading investments in the name of a lower earning spouse or wrapping investments in trust arrangements.

Capital gains tax allowance

Each individual can realise capital gains to the annual Capital Gains Tax Allowance (currently £12,300) within an investment account without paying Capital Gains Tax. If one were to build funds to circa £250,000 within an investment account and assuming an annual growth of circa 5% per year, one could strip out the capital gains each year leaving the principal sum to be accessed in the future without tax. This is a process that we have been using for many years.

Offshore bonds

These ‘tax wrappers’ which are typically offered by large insurance companies domiciled in Guernsey, The Isle of Man and Jersey, allow the gross roll up of investment growth. Since the tax of growth is deferred until the investment is cash in, the amount that would have been payable each year in tax remains invested and in turn grows. This compound growth structure can help to increase portfolios values more rapidly than ‘unwrapped’ structures.

Enterprise investment funds and venture capital trusts

Investment into small companies is rewarded by a generous initial tax relief of between 30-50%. In addition there are tax breaks on dividends paid from Venture Capital Trusts and offset relief and Inheritance Tax mitigation for investment into Enterprise Investment Trusts. Building a pool of assets helps reduce the overall risk of such an investment and careful research into the best annual propositions can lead to healthy overall returns.

Portfolio construction

Certain investment plans such as pensions and ISAs are free of tax on growth and income. By constructing portfolios in such a way that assets, which are likely to be traded often (and are liable to Capital Gains Tax) or that generate higher levels of income, sit predominantly within these ‘tax wrappers’, and manage all accounts on a consolidated basis, we can build in additional tax efficiency within the overall client funds.

For clients whose pensions are possibly going to exceed the Lifetime Allowance, we can construct or rebalance the overall clients’ funds in such a way as to concentrate more cautious assets within the pension and load more ‘growth oriented assets’ such as equities outside the pension. This will reduce the pressure upon the allowance and thereby reduce the likely future tax.