Ten Tax Planning Points To Raise With Clients

Author: Tim Hills IFAonline | 17 Apr 2013 Tim Hills, financial planner at JLT Wealth Management, offers his tips. Most clients have ample opportunity to keep more of their hard-earned wealth, using well established and non-contentious plans that will never appear on HM Revenue & Customs’ (HMRC) radar. But how many clients use all that is available to them? The following are some questions that may be useful to use with new clients, as well as to reinforce and refine plans for existing clients. 1 Rates Do you both pay the same rate of income tax? If not, is it possible to rebalance incomes so that this can be achieved, thereby making the most of the available personal (and age) allowances? 2 Thresholds If you are fortunate enough to earn over £100,000, what can be done to bring the income level below that threshold? The personal allowance reduces where the income is above £100,000 – by £1 for every £2 of income above the limit. Someone under the age of 65 earning £118,880 will lose their whole personal allowance. 3 Allowances Have you used your full ISA allowances, not just the cash element? If you have no “new” money you wish to commit to your portfolio, do you have any other investments in tax wrappers? While we tend to think of OEICs and unit trusts to ‘Bed&ISA’, a partial encashment from an investment bond (which, of course, notionally suffers basic rate taxation within the fund) is another source to fill ISA allowances. Clearly, care must be taken to avoid triggering tax charges using funds from a bond. 4 Assets Are you considering disposing of any assets and, therefore, incurring capital gains tax (CGT)? Who owns the asset? Transfers between spouses are not disposals for CGT. Plan when to crystallise gains – for example, if a client is considering a gift of property, now may be a good time due to the effect of the market on current values. Do you have losses that may be offset? This is often missed. 5 Pensions Have you made full use of your annual allowance for pension planning? If so, what about the previous three years? Attention needs to be paid to pension input periods and ensuring the client was a member of a pension scheme for eligibility purposes. 6 VCTs, EISs… If you do not wish (or cannot) commit any more investment into pensions, consider enterprise investment schemes (EISs) and venture capital trusts (VCTs). These offer the potential for tax relief on contributions, no CGT and, in the case of EISs, qualifying for business property relief (BPR). The latter means the investment will fall out of account for inheritance tax (IHT), as long as it has been held for two years and remains held at the date of death. The effective savings on income tax, CGT and IHT make such investments look very attractive. Note, however, that these are considered ‘high risk’ investments and care must be exercised. The tax tail should not wag the investment dog. 7 IHT Have you done everything possible to reduce your IHT liability? Gifts out of regular income (as long as they do not affect your standard of living) are not taken into account. Use your annual allowance of £3,000 each and remember you can carry forward the previous year’s unused allowance. Make the maximum gifts on marriage. Consider investments that qualify for BPR that, perhaps some clients , will consider are less ‘risky’ than EIS/VCT. For example, there are a number of schemes that are asset backed, targeting a modest and more predictable performance , the main purpose being BPR qualification. 8 Gifts If you are making gifts to children consider investing into Junior ISAs and/or a stakeholder pensions. In addition to the potential IHT savings available by making gifts, the beneficiaries can then receive the advantage of having their investment in a tax efficient wrapper, rather than simply cash in a deposit account. Tax relief is available for minors who do not pay tax, as they have personal allowances. 9 Process Understand that tax planning is a cyclical process – not an event. Tax legislation and personal circumstances change constantly. Do not be lulled into a false sense of security by thinking that a particular aspect has been dealt with (perhaps some years ago) and it remains completely effective. 10 Check, check and check again Check everything you receive from HMRC – they have been known to get it wrong! Read more: http://www.ifaonline…s#ixzz2QopEAqVo IFA Online – News, blogs and analysis for IFAs. Visit the website now.