A new Government is in place, but policy will continue to evolve. The forthcoming emergency budget on 22 June will provide some clarity around how the Cabinet intends to help restore economic stability and tackle the UK's national deficit. Spending cuts and tax rises are likely, which emphasises the need for investors to keep their focus on flexible investments, and make sure their money is working whatever the changes in policy.
A possible rise in the rate of capital gains tax (CGT), from 18% to 40%, has already been announced. The impact of this on personal finances will vary according to individual circumstances. Tax efficient investments can help investors deal with this and reduce their tax burden overall. Enterprise Investment Schemes (EIS) are one of the most tax-efficient investment products available, offering tax benefits that can be realised within just three years. These include capital gains tax deferral for the life of the investment, 20% income tax relief, and inheritance tax relief.
Meanwhile, Venture Capital Trusts (VCTs), although they don't deliver CGT deferral, do hold the potential for tax-free capital gains. This benefit comes alongside a 30% tax rebate on the amount invested plus the potential for tax-free dividends. More and more investors are turning to VCTs as the need for tax efficient investments increases, and they're also considering them as a complementary solution to a pension. This is especially applicable for higher earners as a result of previous policy changes to tax relief on pensions which came into effect from April this year. The changes mean tax benefits available from pensions are now much more limited.
Regarding inheritance tax (IHT), the IHT threshold was frozen at £325,000 by Labour in their March Budget. However, the change in Government has meant that policy around this most contentious of taxes has changed once again. One result of the coalition is that the previous Tory proposal, to raise the IHT threshold to £1 million, has been abandoned. However, investors can work to ensure that, whatever politicians decide, their assets can still achieve potential IHT exemption, by choosing from the wide range of IHT solutions on the market. Products available now can deliver speed, in the form of relatively swift exemption, simplicity, via structure and design, and the ability to retain control over your money.
There was a huge amount of coverage around the general election and, with the forming of the historic…
