Talking about tax

It is a depressing but almost perennially true fact that a relatively minute proportion of accountancy firms in the UK have a genuinely integrated tax-planning and financial-planning service proposition for their clients.  It has been encouraging here, at 2020 Financial Services, to recently have received an increasing number of enquiries from accounting and tax-specialists, who are focusing on the strategic issue of the interface between tax-based and financial-planning services.

And yet, given the huge governmental pressures on revenues, tax-planning should be pretty much top of our priority list when assisting clients.  And when tax-planning, it's almost impossible not to address the financial-planning implications, isn't it?  Apparently, the government has plans in place to collect over a billion pounds in additional revenues, from a whole bundle of initiatives.

If our aim as IFAs is to protect our clients' wealth from erosion, then now's the time to talk about the following subjects:

Capital Gains Tax - with the top income tax rate at 50% and the CGT rate at 18%, how are we going about constructing our clients' investment portfolios?  In the medium term, the discrepancy between the two rates is unlikely to persist - but right now, there's a compelling argument in favour of non-income producing assets for higher-rate taxpayers.

ISAs - with the increased personal limit now at £10,200, why aren't we promoting these products more consistently with clients.  If we have clients within a decade or so of retirement, we should be seeking to max out their takeup of this invaluable allowance.  And remember that, whilst those aged 16-17 can only have cash ISAs, those aged 18 or above can access the full deal if their parents have the wherewithal.

Inheritance Tax - the IHT threshold remains unchanged at £325,000, but the transferability of thresholds means a combined limit of £700,000 for a qualifying couple.  Are we talking to our clients about using their annual allowances, gifts out of income, Will Trusts, DGTs etc?  Huge amounts of uncertainty about the UK's Long-Term Care provisions means that one of the safest ways for elderly people to protect their estate is to engage in some limited IHT planning.

Pensions Tax Relief - as you know, we now see the loss of higher rate tax relief on pension contributions for those earning more than £130,000.  Those of us who have HNW clients need to be talking to them in some depth about how their packages are structured.  Salary sacrifice may do wonders, not least because of the additional NIC saving.  Please note that although the primary restrictions do not come into force until 06/04/2011, there are transitional rules and restrictions in place already.

EIS - a whole package of tax-reliefs, including 20% income tax relief and the ability to defer the taxability of other capital gains.  Higher risk investments aren't for everyone, but for the right client, the maximum investment limit of £0.5m for income tax relief, may be a very relevant tool in your investment armoury.

VCT - effectively a collective investment scheme that invests in a range of EIS-type investments.  Look on it as a way of pooling your EIS risk.  The main VCT relief is 30% on income tax, but the investment itself (up to £200k per tax year) enjoys tax-free income and capital gains.