2014/15 Year-End Tax Guide
We are delighted to attach our Year-End Tax Guide for 2014/15. Whilst the guide provides an overview of the types of basic planning which can be undertaken before the end of the current tax year, it is worth noting some further areas of planning which may be applicable to you.
We work with our clients across the tax year to ensure that extraction and income levels are as tax efficient as possible, whether this is done by succession planning, planning to utilise the reliefs of grandchildren, dealing with EIS investments, ensuring that income levels mean that child benefit is preserved etc, etc. Over the last 12 months we have re-structured many of our clients’ affairs to be more tax efficient, whilst providing income and asset protection for the wider family.
We have an exciting few months on the horizon, with the Budget 2015 speech in March, followed by the Election in May. It is possible that we may see some significant changes in terms of tax laws over the next 12 months, meaning it would be prudent to act as soon as possible in terms of your affairs.
What else can we do before 5 April?
Other than the basic planning outlined in the guide, there are plenty of other tax planning opportunities for clients to engage in. Capital Gains Tax (CGT) and Inheritance Tax (IHT) are particular areas of interest to us and our clients. Over the past 12 months we have worked on many cases involving the restructuring of businesses, assets and other forms of capital to ensure that family wealth is protected for future generations. Some examples of this type of planning include:
· Family Investment Companies (FICs) – whereby assets are retained under the control of one or more family members, but values and income are passed tax efficiently
We know that corporation tax rates will be at their lowest from April 2015. Therefore any planning regarding companies is currently very tax efficient. We are seeing tighter restrictions being placed on trust and will planning, meaning that we have reviewed and devised other ways of ring fencing and protecting family wealth. The FIC does this by locking value within various types of shares and passing these as gifts, whilst ensuring that control is retained. These companies work particularly well with cash and stocks and shares, but with careful planning can apply to other assets too.
· Grandparents’ Settlements – a tax efficient way of passing wealth to grandchildren and future generations
Where a parent makes a settlement for their own children, or where they provide an income to their children directly, tax charges can arise on the parent as if they have received the income themselves. However, grandparents are not restricted by this, and where they make a settlement or provide an income, the grandchildren will be assessed to tax on this themselves. . Therefore, rather than allowing value to pass from generation to generation, it makes sense to skip straight to the grandchildren.
We have undertaken a lot of planning in this area, in a myriad of ways, which yields the income tax benefits but it also ensures that each generation is not 'loading up' their own taxable estates for IHT purposes.
· CGT reliefs and losses
A basic, but often overlooked area of planning. If you are seeking to sell or purchase any assets, it's important that we discuss these and any available reliefs or losses prior to this going ahead. EIS/SEIS planning should also never be overlooked.
Capital Gains Tax (CGT) due on disposals of assets can be deferred by reinvesting the proceeds in shares qualifying under the Enterprise Investment Scheme (EIS). However, the tax on the original gain will become payable when the EIS investment is sold. The reinvestment can take place up to three years after (or one year before) the original disposal.
From 3 December 2014, gains deferred in this way which would have qualified for a 10% rate of CGT because of the availability of Entrepreneurs’ Relief, will continue to qualify for this relief when CGT ultimately becomes payable.
In addition under a relatively new scheme, the Seed Enterprise Investment Scheme (SEIS), there is a complete exemption from CGT for any capital gains made during the year, capped at 50% of the amount of any qualifying share subscriptions made under the scheme during the year (or made during the following year and carried back).
Under both schemes no CGT is payable on gains arising on the EIS/SEIS shares themselves that have been subscribed for provided all the qualifying conditions are met and the shares have been held for the necessary length of time, which is typically three years.
· Restructuring in the event of divorce/family break down
Unfortunately, we do see families break down from time to time. It is important that any tax planning undertaken protects family wealth from such scenarios. However, where it cannot, the timing of the separation and divorce and where this occurs in the tax year is integral to the passing of assets between parties. The rules are different for IHT and CGT. For CGT purposes, once the tax year of separation is over then husbands and wives lose the ability to pass assets between them tax free. This is the case even if the divorce takes years to complete. For IHT purposes, the joint nil rate band and spousal exemption will apply until the date of divorce.
· Planning for non-UK residents who are currently out of the scope of UK CGT
Currently, non-UK resident individuals are exempt from paying CGT on the disposal of UK property. However, from 6 April 2015 this position changes and CGT will become due, regardless of whether an individual is non-UK resident or not. Therefore any capital transactions involving non-UK resident individuals and their UK properties must take place by the end of the tax year in order to maximise availability of this relief. After this date, it will be much more difficult to mitigate CGT in these circumstances.
· ISAs - Tax-free savings account - £15,000
We are entering 'ISA season' where traditionally people who have not already done so, start to think about taking advantage of their ISA allowance before it is lost. If you are considering an ISA investment before the end of the current tax year, our Wealth Management team offer an independent advisory service designed to assist clients in building a tax efficient investment portfolio that meets with their expectations, as well as their attitude towards investment risk. We offer access to a wide range of ISA investments with leading Fund Management Groups, most of which are free of initial Fund Manager charges. If you would like more information please contact Phil Newton on 01942 292500.
Jackson Stephen Wealth Management LLP is an appointed representative of Prolific Financial Services Limited who are authorised and regulated by the Financial Conduct Authority (FCA).
If you would like to discuss any of these matters or talk to us about your tax affairs in general, please contact our Tax Partner, Chris Barrington on the details below:
telephone: 01942 292505