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Tax efficient financial planning

Tax laws change every year and sometimes more often. Make the most of the current reliefs and allowances.

Everyone wants to benefit from tax efficient financial planning, so here are a few ideas:

Invest more effectively

Use up your annual ISA allowance. Designed to replace the PEP, ISAs are free of Income Tax and Capital Gains Tax. This could be particularly helpful if you are a high income earner as all your savings will be taxed at 40% otherwise.

Pensions - not just for retirement

Bumping up your pension contributions before the end of the tax year is a good way to gain generous tax relief and benefit from the tax efficient treatment of pension funds. Optimise contributions to personal or company pension schemes, or make additional voluntary contributions.

Pensions offer a tax efficient way to provide a future income in retirement, with tax relief on the contributions and tax efficient investment funds.

Save more effectively

There are a number of other tax efficient savings schemes available, most of which are available from National Savings & Investments (NS&I); a financial organisation offering products secured by the HM Treasury, thus giving the investor the promise of unparalleled safety for their money. You may well have heard of the NS&I’s Premium Bond, which involves savers buying a series of bonds which are then entered into a draw each month.

However, the bonds do not accrue any interest; the only income that you will make from them is prize wins that you might acquire. As a result, these often do not represent a particularly profitable investment.

If you are looking for a more regular return on your money, but you still wish to have the security of the NS&I bond scheme (by which you are essentially lending money to the government), you may be interested in their Savings Certificates. These are available in fixed-interest and index-linked varieties, the latter of which offers a guarantee of inflation beating rates.

Inheritance Tax - not just for the rich

If the words “Inheritance Tax” conjure uptitled families in stately homes falling on hard times, you might be in for a nasty surprise. Inheritance Tax (IHT) will apply to anyone if their estate - including any assets held in trust and gifts made within seven years of death - is valued over £312,000. The tax is payable at 40% on the amount over this. IHT is often lost through not writing life insurance policies in trust, not getting professional advice about allowances, and worst of all by not making a will.
You should bear in mind that although ISAs and other tax free savings schemes are not taxable during your lifetime, the assets included in these are liable for IHT.

Trust in Trusts

Trusts can be an effective way of limiting tax liabilities. Using a discretionary trust you can pass some of your assets on to trust-holders who are legally charged with looking after them until your death. We will look at this topic later in this newsletter.

This article was taken from Seneca Reid's Spring 2009 newsletter.

Seneca Reid Ltd is an appointed representative of Openwork Limited which is authorised and regulated by the Financial Services Authority.

The information on this website is for the use of residents of the United Kingdom only. No representations are made as to whether the information is applicable or available in any other country which may have access to it.

Openwork Limited offers insurance and investment advice on products from a limited number of product providers and advice on mortgages representative of the whole market.