By TIM STALKARTT 25/03/2010
As expected the Budget lacked any significant policies to deal with the mounting debt and we remain convinced taxes are set to rise in the future.
Whichever party is in control after 6th May 2010, we should expect another Budget shortly afterwards, and it is this one that will signify whether the UK has entered a period of ‘Austerity’. Below we consider some tax saving ideas that will help investors prepare for the longer term.
Use your ISA allowance – If you haven’t already taken out your ISAs this year you can put up to £7,200 (£10,200 if you are 50 or over by 5th April 2010). Upto half of this can be placed into a Cash ISA and the balance can be invested in a Stocks and Shares ISA. ISA income does not need to be declared, so it does not affect your personal age allowance if you are 65 or over.
Bed and ISA– If you have no funds available to put in an ISA look at your existing investments and consider selling them and repurchasing the assets back inside an ISA. With £10,100 per year of tax free gains, this can be a good way of tidying up your portfolio and making it more tax efficient.
Transfer assets to your Spouse – If your partner doesn’t pay tax or is on a lower tax band than you, then transfer cash savings or any unwrapped income generating asset into their name and pay less tax on it.
Make a pension contribution – Pensions remain attractive investments for most high earners, but the Chancellor has started to restrict higher rate tax relief – first to those earning £150,000 or more, then amended it to those earning £130,000 or more. We suggest making contributions to pensions, whilst higher rate relief remains available. If you earn over £130,000 then seek advice as the rules have become much more complicated.
Use your Capital Gains Tax (CGT) allowance: With £10,100 per year of tax free gains, it makes sense to use this allowance before the next tax year starts and the incoming government decides to review the CGT rules.
Pay tax on Gains and not Income: With the CGT tax rates at 18%, it is better to make a capital gain and pay the tax on that, than on an income which could be as high as 40%. This anomaly is likely to be closed sooner rather than later, so it could be worth taking gains now ahead of any change in the rules.
Charitable giving: If you pay higher rate tax, you can claim the difference between the higher rate of tax (40%) and the basic rate of tax (20%) on the total (gross) value of your donation to the charity.
Venture Capital Trusts (VCTs): Subscriptions for new shares in VCTs attract an Income Tax rebate of 30%. However, you can only reclaim tax that you have paid.
Enterprise Investment Schemes(EISs): Subscriptions for new shares in qualifying investments attract 20% income tax relief. You can only reclaim tax that you have paid.
If you have any questions or require any help, please call one of our Advisers on 020 7189 9999.
Please note: In our view, VCTs and EISs are not an appropriate investment for everyone. We would recommend that VCTs and EISs are only considered by experienced investors who are liable to higher rates of Income Tax, are willing and able to hold their investment over the longer-term and are comfortable with taking on a high level of risk.