INSPIRATION IN WEALTH MANAGEMENT
Inspire Wealth Management client’s express greatest concern in relation to taxes on Income, Capital Gains and most notably Inheritance Tax.
There are various ways in which these taxes can be minimised, or mitigated.
Income and Capital Gains Taxes:
- Income tax relief at the highest marginal rate on contributions up to set limits
Venture Capital Trusts:
- 30% Income tax relief on investment into the shares of qualifying smaller companies. The maximum investment is presently £200,000pa.
- Income and Gains on VCT shares are free of income and Capital Gains Tax.
Enterprise Investment Schemes:
- 30% Income Tax relief on investment into EIS qualifying shares wef 6th April 2011. The maximum investment to qualify for Income Tax relief is now £1,000,000, producing a tax credit of £300,000 so long as there is Income Tax payable to cover it.
- Subject to certain conditions, where a gain has arisen on previous investments, the gain can be deferred through reinvestment into EIS qualifying shares until the EIS shares are realised.
- Tax relief can be accelerated under certain circumstances
- Subject to certain conditions gains on EIS qualifying shares are Capital Gains Tax free
- After two years the value of any EIS shares held is exempt from Inheritance Tax.
At Inspire Wealth Management we pride ourselves on our knowledge of the planning opportunities available. Having discussed the various options at length with our clients we can either arrange solutions for them directly or in conjunction with our professional partners (see Professional Partners).
A few IHT avoidance and mitigation ideas:
- Make a gift and enjoy a tax deferred income for life. Using certain planning structures the value of the gift for IHT purposes will under most circumstances be discounted.
- Prevent the growth on existing investment values increasing the Inheritance Tax liability; this whilst enjoying a tax deferred income
- Use the gifts out of income exemption to increase the availability of capital upon death to pay any Inheritance Tax due.
Our initial discussions will focus upon our clients’ will. We will then advise upon the introductions of suitable trusts and subsequently more specialist arrangements as appropriate.
VCT's and EIS schemes are complex products and not suitable for everyone. Professional advice should be sought before using these products as a taxation strategy. Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate taxation and trust services.
New Individual Savings Account (NISAs)
Individual Savings Accounts (ISAs) are tax efficient savings accounts. Cash ISAs are completely exempt from tax, and all capital gains and income within a stocks and shares ISA are also exempt from tax, apart from the 10% tax credit on UK dividend income which cannot be reclaimed. ISAs were introduced in 1999 to replace PEPs and TESSAs. You can use an ISA to save in cash, usually via a bank, or invest in Stocks and Shares either via a Unit Trust, OEIC or directly into shares via a Self Select ISA.
From 1st July 2014 a new, simpler product, the “New ISA” (NISA), is available with an overall annual subscription limit of £15,000 and greater investment flexibility.
From 6th April 2014 to 1 July 2014, contributions within the ISA subscription limits for 2014/15 could be made subject to a maximum overall limit of £11,880, of which £5,940 could be in cash. From 1st July 2014, additional contributions are now possible up to the £15,000 NISA limit in the 2014/15 tax year.
Under the new rules:-
- ISAs held at 1st July 2014 automatically converted to NISAs.
- The £15,000 limit can be invested wholly in cash, stocks and shares or any combination between the two.
- It is only possible to have one cash NISA and/or one stocks and shares NISA in any given tax year.
- In addition to transfers from cash to stocks and shares NISAs, transfers from stocks and shares NISAs to cash NISAs are also permitted from 1 July 2014. Current year savings must be transferred in full whereas previous years savings can be transferred in whole or part, subject to the agreement of the provider.
PEPs have been reclassified as Stocks and Shares ISAs and TESSAs (Tax Exempt Special Savings Accounts) and TOISAs (Tessa Only ISAs) have been reclassified as Cash ISAs.
It is not possible for ISA managers to reclaim the 10% tax credit on UK dividends. There is however a 20% tax credit on funds that pay interest, such as bond funds, which are funds where at least 60% of the assets pay interest distributions not dividend distributions.
In terms of capital gains tax, all capital gains are tax free but if you make any losses within your ISA these cannot be offset against gains made outside it.
You do not have to include details of ISA investments, income received or gains realised on your annual tax return. So whenever you take withdrawals, or cash-in your ISA you do not have to pay tax on the money withdraw.
Junior ISAs were introduced on 1 November 2011 and will provide all parents with a clear and simple way to save for their children’s future. Children under the age of 18 who do not have a Child Trust Fund (CTF) will be eligible for Junior ISAs. Parents can save up to £4,000 a year tax-free into the new accounts. Funds in a Junior ISA will be locked-in until age 18 and will roll over (by default) into an adult ISA on maturity, to help foster a long-term savings habit amongst young people.