Wealth Management: Top five personal tax tips
April 10, 2013
In the third blog in our Wealth Management series, Chiks’s David Bennett offers his top five personal tax tips.
1. Benefiting from business asset ownership
Business assets can be used to access substantial inheritance tax breaks, including business property relief. This effectively removes the value of specific business assets from your estate, or reduces the value of the assets for inheritance tax purposes. As a result, it is essential to put the ownership of property in the most appropriate location – inside the business; outside the business; or in the pension fund. The latter has been a popular investment vehicle for wealthy individuals who have pensions with business interests, but the tax charges on undrawn pensions should not be overlooked.
2. Planning tax-efficiently
Entrepreneur’s relief is an extremely generous tax break if used effectively. It means the first £10m of capital gains on specified business assets are taxed at a rate of just 10 per cent, compared with 28 per cent for higher-rate taxpayers. Maximising your annual capital gains tax (CGT) allowances is also crucially important. Failing to do this can have the equivalent effect of paying tax on an extra £40,000 of gross income.
3. Holiday lets can create tax advantages
Unlike property letting in general, furnished holiday lets can qualify for tax breaks – although certain conditions must be met. If they qualify, your holiday lets will be treated as a trade for tax purposes and you will benefit from Entrepreneur’s Relief as well as capital allowances.
4. Harnessing the advantages of EIS and VCT investments
Investing in enterprise investment scheme (EIS) companies and venture capital trusts (VCTs) can create substantial tax advantages. You can invest up to £1,000,000 in an EIS company in a single tax year and receive income tax relief at 30 per cent. Seed EIS relief offers income tax relief at 50% on investments of up to £100,000 in start-up businesses. The maximum amount you can invest in a VCT to attract income tax relief at 30 per cent is currently £200,000 per tax year.
5. Making the most of university accommodation
Providing accommodation for children at university is usually more tax-efficient if the child owns the property. Alternatively, the house may be held in trust for the child. Provided the correct form of trust is used, the gain will be exempt under main residence relief.
David Bennett is a tax partner at Chiks