Tax Wrapper Planning
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What is tax planning?
​Personal tax planning is a key component of an overall financial strategy. This is not be confused with tax avoidance or tax evasion which is illegal.
Tax planning is the legal process of arranging your financial affairs to minimise a tax liability.
We can work with you or with you and your Accountant to help to reduce the amount of tax that you pay over your lifetime. Our involvement involves tax wrapper planning on your savings & investments along with overall Estate Planning strategies.
So what is a tax wrapper ?
Tax Wrappers are a tax efficient `blanket` that can be placed around savings and investments. They can be used to reduce/defer different types of tax, be used as a vehicle to claim tax relief or simply to omit taxation altogether. Sound financial planning should consider all forms of tax wrappers and match them to an individuals circumstances.
Below are the most commonly known `Wrappers`
Mainstream tax wrappers include ISA`s, Pensions and Investment Bonds.
ISA`s
(individual savings accounts) are undoubtedly one of the most popular tax wrappers available. They allow each UK individual to save/invest up to £20,000 per tax year. Each new tax year you get a new ISA allowance and previous tax years ISA balances retain their tax wrapper status until balances are withdrawn. Equally previous changes in rules now allow for a spouse or civil partner to inherit ISA`s upon a partners death whilst retaining its ISA status.
Investment Bonds
not to be confused with Cash Bonds, Government or Corporate Bonds. An Investment Bond is a single premium life assurance backed product which has an `investment engine` (funds) to it. The key benefit is to higher rate taxpayers, whereby it allows withdrawals (annual limit 5% of original investment) without incurring taxation, along with income and capital gains taxed being satisfied within the Bond at basic rate (20%). Generally these Wrappers are used to defer taxation to a potential time when the holder is no longer a higher rate tax payer (usually retirement) and thus taxation is satisfied already at basic rate.
Pensions
are now more popular than ever particularly given the Governments push on workplace pensions since 2012. Pensions benefit from tax relief on contributions going into a pension and growth within the Wrapper which is usually tax free.
Other advantageous tax benefits of a pension can be gained such as when you utilise salary sacrifice through a workplace pension, whilst remembering that pensions fall outside the estate for IHT (inheritance tax) purposes.
The tax advantages also mean that you can receive a tax free lump sum when taking your benefits. Which means when your monies are in a personal pension, that your tax free lump sum would usually amount to 25% of the total fund value.
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Alternative `Wrappers`
There are a range of alternative Government backed tax incentivised wrappers, for example venture capital trusts (VCT`s), that exist in the financial markets. Alternative wrappers are particularly relevant to the higher risk and to higher rate taxpayers.
Contact us if you would like to discuss the area of alternative wrappers further.
Want to discuss your tax wrapper planning opportunities further?
Give us a call and see how we can help.
What forms of taxation can be mitigated/reduced by holding monies/funds in tax wrappers?​
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Income tax
Capital Gains tax
Dividend tax
Inheritance tax
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