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Welcome to the latest newsletter from the Paramount Group of independent financial advisers.
With the Chancellor’s Budget set for 12 March, don’t forget to visit www.paramountifa.co.uk afterwards for a summary of the main changes and how they will affect you.
Changes to Capital Gains Tax
The changes to Capital Gains Tax (CGT) first mooted in the Chancellor’s 2007 Pre-Budget Report will definitely come into force from 6 April 2008. The key change will see indexation and taper relief abolished, with a flat of CGT at 18% instead. The result could be an increase of up to 80% in the rate of CGT payable on business assets.
The Chancellor has, however, backed down on one point: entrepreneurs' relief will reduce tax to 10% of the first million pounds of cumulative qualifying gains.
Where assets were owned prior to April 1998, the preserving indexation rules could be very valuable For example, the indexation allowance could be maintained by transferring assets to a spouse, or selling or gifting them to a trust.
There will also be substantial changes to the UK tax rules for non-domiciled UK residents from 6 April 2008 and these will have an impact on both income tax and CGT. For example, anyone receiving capital payments under the offshore trust regime (stockpiled gains) will pay CGT at 28.8% from April (currently 64%) so it may make sense to delay returning assets to the UK until after 5 April 2008.
As is usually the case with tax regulations, the details are complex and it is always prudent to seek professional expert advice.
Contracting Out
Personal Pensions used for contracting-out of the State Second Pension (often known as S2P, previously known as the State Earnings Related Pension Scheme, SERPS) should be reviewed by the end of March 2008, if this has not already been done.
The main reason for this is that the rebate contributions payable in respect of contracting out for tax years commencing 6 April 2007 onwards were significantly altered. For pension clients aged 43 and over, the rebates have been capped by the Government so that these do not increase with age – this results in a significant reduction in the rebate contributions from previous levels. As a result of this, the Association of British Insurers (ABI) states that clients who are over age 43 are likely to be worse off financially if they remain contracted out.
When contacting-out through personal pension policies was first permitted in 1988, significant financial incentives were offered (partly with a view to reducing the eventual State Pension liability), and many individuals did this. Now, not only is there no financial incentive, but the Financial Services Authority (FSA) in its May 2007 leaflet indicates that “the decision to contract out or stay contracted out during 2007/08 is likely to be finely balanced in purely financial terms”, and that older age groups are “likely to be financially worse off”. In addition, Government has also proposed changes to S2P and contracting out, and if these go ahead, contracting-out via a personal pension will no longer be permitted from 2012 onwards. However, the FSA stance is impacted by various complications and imponderables which have crept in since 1988. Whilst S2P can only be drawn in pension format from State Pension Age (which the Government proposes to increase from 65 to 68 by 2046), the alternative protected rights can be drawn from the minimum pension age (currently 50, 55 from 2010), and 25% can be drawn as tax free cash. The FSA literature mentions the risk that Governments may change pension policy in the future (which means that the S2P projections provided cannot be fully reliable). These additional issues need to taken into account in giving financial advice.
Invest in the Brontës
Film lovers have the opportunity to invest in a tax efficient way in a new film being made on location in Yorkshire about the world-famous Brontës. The film – Brontë – will start filming in the region in the spring and, unlike many films ,the $11 million project already has UK distribution and global representation through Mel Gibson’s Icon Entertainment. Brontë will star some of the UK’s and Hollywood’s finest actors, including John Hurt, Kristen Scott-Thomas (Gosford Park; The English Patient) and Joan Plowright. The film will be directed by Charles Sturridge who was also behind Brideshead Revisited and Lassie.
The film will qualify under the government’s Enterprise Investment Scheme (EIS) which provides a range of tax reliefs for investors. For example: you could enjoy 20% Income Tax relief on the first £400,000 invested each year, unlimited 100% IHT relief after two years and CGT exemption on the first £400,000 invested each year. Investment packages start from £25,000 and include dinner with the stars and a role as an extra! The producers are looking to close the remaining finance by the end of the current tax year.
An ISA for Easter
Don’t forget that the new tax year starts on 6 April, so when you’re buying all those chocolate eggs, think about your nest egg as well. An ISA (Individual Savings Account) is one of the simplest tax efficient vehicles you can invest in. The ISA was introduced in April 1999, and allows individuals to save up to £7,000 in cash and/or stocks and shares each year without paying tax on the interest. So if you invest on or before 5 April, and then again in the new tax year, you could effectively save £14,000 tax free. As ever, there will be a rush as people struggle to get the paperwork completed on time so call us now and make sure you make the most of this generous tax break.
Product focus
There are two products we’d like to highlight in this issue. Call us for further details.
- The Downing Protected Venture Capital Trust
Venture Capital Trusts (VCTs) are investment companies which invest in a portfolio of small UK trading companies. VCTs offer generous tax benefits to investors, including 30% income tax relief (in the 2007/08 tax year). However, they generally carry a higher risk than certain other investments. The Downing Protected VCTs XIII and IX aim to reduce the risks normally associated with VCTs.The focus is on investee companies that own substantial assets and the VCTs will seek to take charge over the assets in order to protect their investments.But note: these attractive products are available only until the end of the tax year on 5 April so you need to act quickly to play your part in boosting the UK economy by investing in small companies with great potential for growth.
- The Braemar Sixth Coronation Fund
AIM quoted property management company Braemar Group offers investors the opportunity to invest in reidential property while claiming tax relief against their income. This achieved through the Coronation VI Limited Partnership buying vacant space above shops and commercial premises and renovating or converting the space into affordable housing. Investors can also borrow money to invest in the scheme, enjoying tax relief on the whole amount borrowed. Effectively, this means you can invest a net amount of £16,400 whilst enjoying the full benefit of £172,500 of investment in property.
Contact us
For more information about any of the topics covered in this newsletter, or if you have any other queries relating to financial matters, contact the Paramount Group at:
w:www.paramountifa.co.uk
e:
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t: 01924 351000
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