Day 2 – Essential Year End Tax Planning – Proactively manage the challenge of cash!


In this week’s blog series our Tax and Wealth Management specialists will be discussing essential tax and financial planning tips which should be considered prior to the end of the tax year on 5th April 2013. In the second in a series of five blogs, Dave Gleeson talks about proactively managing the challenge of cash.


Everyone should keep some of their wealth in cash. After the economic turbulence of recent years, the need to hold some cash has never been clearer. The problem is that many so-called ‘savings’ accounts offer pitifully low interest rates. Others offer a high bonus rate which disappears after six months or a year. Overall, it is extremely difficult and time-consuming to keep your money in competitive accounts. Savers are also concerned to keep their money safe, covered by a bank deposit guarantee scheme and want to avoid all the paperwork in opening and closing accounts.


 The solution – use a Cash Management service


A Cash Management service is designed to ensure that:


– Your cash earns consistently competitive interest


– Your cash is secure


– You save time, effort and worry


This is achieved by regularly reviewing the UK savings market and the aim is to select competitive accounts from reputable institutions. Money is moved when rates change and new opportunities arise. Paperwork is arranged and you are kept informed. The difference it makes can be dramatic.


 Utilise Individual Savings Accounts (ISAs)


ISAs are an excellent investment for higher rate taxpayers and the maximum allowance for 2012/13 is £11,280 of which £5,640 can be deposited into a cash ISA, with the balance being deposited into a stocks and shares ISA.


The overall ISA limit will rise to £11,520 from April 2013.


Consider investing in Enterprise Investment Scheme (EIS) and Seed EIS shares


Capital Gains Tax may be deferred by reinvesting into EIS companies. The EIS investment must be made in the period starting 12 months before the date of the gain and ending 36 months afterwards. The deferred gain will become chargeable again when the EIS shares are later sold. The EIS shares themselves may be exempt from CGT and confer income tax relief at 30%, subject to detailed conditions being met.


Reinvestment may also be made into shares qualifying under the Seed EIS scheme. This scheme is designed for small, start up companies. If reinvestment is made by 5 April 2013, the original gain may be extinguished altogether, rather than merely deferred.


In addition, the rate of income tax relief on SEIS investments is at 50%, making it possible for a SEIS investment to attract 78% tax relief.


A broad range of professionally managed EIS and SEIS investment funds exist who invest in a broad range of EIS and SEIS companies on behalf of investors, so the tax benefits of EIS and SEIS investments are available to any UK tax payer!


 Alternatively, consider investing in Venture Capital Trusts (VCT)


VCTs are specialist tax incentivised investments that enable individuals to invest indirectly in a range of small higher risk trading companies and securities. VCTs have been an accepted tax planning tool for 17 years although the specific rules and tax relief has been refined over the years.


VCTs are companies in their own right and, similar to an investment trust; their shares trade on the London Stock Exchange.


 The Income tax relief investing in a VCT can provide 


– Immediate tax relief at 30% of the amount invested, subject to a maximum investment of £200,000 per tax year. The investment must be held for a minimum of 5 years in order to retain the income tax relief,


– To obtain the income tax relief the shares in the VCT must be new ordinary shares issued by the VCT (so cannot be existing shares to obtain the tax relief)


– Dividends received on VCT shares are income tax free.


 Capital gains tax (CGT) reliefs investing in a VCT can provide


– Any gain you make when you dispose of your VCT shares is free of capital gains tax.


This is an extract from our Essential End of Tax Year Planning Guide 2012/13