Talking about the most effective and efficient tax planning options
Industry insightsView more
We were delighted to co-host Lifecycle’s most recent Tax Matters working lunch, where we saw some of Cheshire and Staffordshire’s accountants in practice come together to discuss some of the most efficient and effective tax planning opportunities to offer their clients.
So, what are they? And who are they most suitable for? Here’s a round-up of the top options discussed at the event.
#1 Pension contributions
Pension contributions are an excellent choice for financial planning and we always recommend that clients make use of their allowance. This is based on earnings for the year and is capped at £40,000.
Not only do they help improve economic security in retirement, but they also provide top rate income tax relief.
Since 2015, revised legislation around pension freedoms has led to greater flexibility for pension related investments. Further changes are afoot as, from 1st November 2019, a series of new rules will take effect to make pensions clearer.
These include consumers being sent "wake up packs" at age 50 and then every five years until they have cashed their entire pension.
A further FCA consultation to make pensions clearer took place in February and will hopefully result in a further increase of interest and awareness in options available – encouraging more clients to seek planning guidance from their accountants and specialist financial advisors.
#2 Using Venture Capital Trusts (VCTs)
Venture Capital Trusts offer significant tax benefits for some clients by allowing them to claim up to 30% income tax relief on up to £200,000 they invest each year. It must be held for at least five years, but any dividends will be tax free and there would be exemption from capital gains on disposal.
Such tax benefits are essentially compensation for making somewhat riskier investments in growth companies. These are sometimes early-stage businesses, which are appealing to many clients.
Our experience also shows that clients on higher rate or additional rate tax bands are naturally drawn to VCTs. They’re also a popular vehicle for those who have maxed out allowances on other tax and investment wrappers, such as ISAs, and hit or exceeded the £1.055million pension lifetime allowance.
They are also popular amongst clients seeking to supplement their income because dividends and returns from selling down capital are tax free.
VCTs are a relatively specialist form of investment, so we always work closely with our clients to ascertain their suitability.
#3 Investments in Stocks and Shares ISAs
We’ve recently started a new ISA year, which means clients have until 5th April 2020 to invest their £20,000 allowance, which can be split between a cash ISA and Stocks and Shares ISA.
But what are the differences? Generally speaking, Stocks and Shares ISAs have better growth potential than cash ISAs because they are riskier, but they do make for efficient and effective retirement saving.
Over the long-term investment period, the stock market usually goes up, despite year to year fluctuations. We know that the average long-term annual return from the UK stock market is about 8% to 10%, which is much better than cash – making it a more effective vehicle to help clients achieve their investment goals.
Another benefit is that spouses or civil partners can inherit ISA savings and retain their tax-friendly status. It’s not a pleasant thought, but it could make a huge difference should the time come.
As with all Lifecycle’s Tax Matters events, the value of speaking to fellow practitioners – like-minded accountants who are also working hard to build and develop successful practices – was immense. The combination of peer support and expert guidance meant that attendees gained valuable insights by exchanging useful information and real-life experiences.
Tax Matters Working Lunches are open to Lifecycle members and are free to attend, so if you’re not already registered then you can sign up for free by clicking here.
About the Lifecycle network
It provides member accountants with a comprehensive range of specialist services – and the expert support required – to improve their client offering at every stage of a business’ lifecycle. From company formation to cessation and all stages in between.
Lifecycle is free to join and also offers members many additional benefits. These include access to competitively priced Professional Indemnity insurance cover, a regular programme of free training and education and discounts on products and services relevant to their business and clients’ needs.
Services offered by Lifecycle include: Company secretarial and formation; equity finance for SMEs; debt advisory for SMEs; personal debt advice; corporate restructuring, insolvency and cessation; debt finance for SMEs; cashflow maximisation; property solutions and legal services.
For more information on Lifecycle click here.
About Thompson Wright chartered accountants and TW Financial Planning
TW Financial Planning is registered with the Financial Conduct Authority and offers guidance on all areas of personal and corporate financial planning.
It is a sister company to Thompson Wright accountants has been providing financial advice to its clients since 1967. Since then, the firm has built up a loyal client base in Staffordshire, Cheshire and further afield. Its mission is to provide clients with innovative, joined‐up and individualised financial planning.