Prudent tax planners should now be looking at their portfolios
It won’t be too long before we have to start thinking about submitting our next Tax Returns, the first deadline being 30 September.
However, prudent tax planners should be looking at their portfolios now to ensure that they mitigate any future unnecessary tax payments. Rather than leaving a review to the last minute, why not contact us for a wealth check and let us help you ring-fence your profits. Here are some suggestions.

Don’t ignore your PEPs
If you hold a Personal Equity Plan (PEP) or a PEP portfolio, don’t ignore them. New tax breaks for PEP investors mean that the wider investment powers attributed to ISAs have now been extended to PEPs. Investors are no longer confined to having just 25% of their portfolio of a general PEP invested internationally.

Under new rules it is also possible to merge a general and a single company PEP. And should you want to spread your holding between a number of different managers, it has become possible to transfer part of a PEP to another manager.

VCT and EIS schemes
If your attitude towards risk-for-reward is at the higher end of the scale, you might wish to consider venture capital trusts (VCTs) or Enterprise Investment Schemes (EISs). Essentially, VCTs are investment trusts that invest in small, unlisted trading companies. At least 70% of the portfolio of a VCT must be in unquoted companies or companies listed on the Alternative Investment Market or Ofex exchanges.

'Capital invested in a VCT can qualify for 20% tax relief.'

Tax breaks
In return for accepting this level of risk, VCTs offer tax breaks to all those who retain their investment for at least three years. All profits and income are tax-free and capital invested in a VCT qualifies for a potential 20% income tax relief if investment is made at the launch of the fund.

Those who invest at launch can also use the trusts to defer capital gains tax due on previous gains if they reinvest these gains within a VCT. The maximum investment in a VCT in any one financial year in order to receive the 20% tax relief is £200,000 (2004/5).

Substantial assets
Enterprise Investment Schemes (EISs) are aimed at the more adventurous investor and offers similar tax breaks to VCTs. The EIS was established to encourage investment in new ventures - which are invariably high risk - so it will appeal only to those with fairly substantial assets. Investors can claim a tax credit of 20% of the amount invested if the shares are disposed of after three years. Any loss on the disposal of shares can be set against the investor’s gains or taxable income in the tax year in which the disposal took place. The annual EIS limit is £200,000 (2004/5) in order to gain 20% tax relief.

Secure returns
Certain National Savings products offer the low-risk saver some tax-free options, even though the rates of interest are not that exciting. You can put up to £10,000 into each of four issues of savings certificates:

- index-linked certificates with a two-year term

- index-linked certificates with a five-year term and guaranteed return per annum plus   inflation

- savings certificates with a two-year term and guaranteed return

- savings certificates with a five-year term and guaranteed return.

We can advise you of the current rates on request. There is no ceiling on the amount that can be reinvested from matured certificates in new issues.

'This year we can receive £8,200 (2004/5) of gains tax-free.'

Capital gains tax (CGT)
There is no point in investing if you don’t consider the implications of CGT. All of us - including children - are entitled to an annual capital gains tax allowance. This year we can receive up to £8,200 (2004/5) a year of gains tax-free. The exemption is lost if it is not used in the relevant tax year. Husbands and wives, if one partner pays little or no tax, can make use of both CGT allowances by transferring assets between each other.

Inheritance tax (IHT)
The inheritance tax nil-rate band is currently £263,000. (2004/5) If your estate exceeds the IHT nil-rate band, it is important to consider ways to mitigate a potential tax liability of 40% above this amount or at least help the inheritors of your estate to meet the bill.

If applicable, it is advisable to consider making use of your annual tax-free allowances - an individual is entitled to give away £3,000 a year, plus additional amounts in small gifts and wedding presents - and of potentially exempt transfers (PETs). A PET falls out of the inheritance tax net completely if the donor lives for at least seven years after making the gift.

If you would like to review your current investment portfolio or are interested in finding out more about the range of tax-efficient investments, please enter below, e-mail or contact us for further information.    Request Tax Advice

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