The Pension Framework

The biggest tax-break is given to those who wish to save via a pension fund. We encourage all our clients to have self-invested pension funds because in line with our theme of ‘Taking Control’ we believe that we are likely to make a much better job of managing these, than leaving it to insurance companies. A large percentage of the investments we help our clients manage is in Sipps.

Under the new pension simplification rules it is now possible to build a fund of up to £1.8 million with no tax being paid on any investment gains or income from investments and full tax-relief on contributions made. The new rules, effective 6 April 2006, allow much greater scope for making contributions. We consider the pension framework the number one port of call for anyone aiming to provide financial independence in retirement, and especially for those who are paying tax at 40% on their income.

Venture Capital Trusts (VCTs)

VCTs are special funds established to give private investors access to venture capital opportunities. They were devised in the 1993 Budget and launched in Autumn 1995. They are managed by a specialist, hands-on venture capital manager who invests the fund’s assets in private, unquoted, OFEX or AIM listed companies, depending on the strategy adopted by the manager.In March 2004 the Government enhanced the income tax relief from 20% to 40%, on investments up to £200,000 per tax year, provided the shares are held for 3 years. Investors pay no Capital Gains when selling their VCT shares, provided they have been held for 3 years or more.

Enterprise Investment Schemes (EIS)

In many ways EIS are similar to VCTs; except that investment is made in a single company with gross assets of less than £15 million before and no more than £16 million after the investment.Income Tax relief at 20% is available on investments up to £200,000 per year and it is possible to defer capital gains on any other assets, by reinvesting all or part of the gain in an EIS company either 1 year before, or 3 years after, the gain accrued. Any losses on EIS shares can be offset against capital gains tax, but any gains are tax-free if the shares are held for 3 years or more.

Peps & Isas

The tax-advantage of Peps and Isas is that they permit any investment gains to be made tax-free (the same benefit afforded to pension funds) and interest and rental income to be paid out or accumulated gross (not dividends).

Peps are no longer available for new investments, but existing Pep funds, built-up from Pep contributions (before ISAs took over) can be quite valuable, in some cases running into 6 figures. It is still possible to contribute up to £7,000 per year into an ISA.