Diary of an adviser: Tax planning tools for clients
Updated 08 August 2017
Minesh Patel talks tax planning tools for clients in his guest ‘Diary of an adviser‘ blog, supporting unbiased.co.uk’s Tax Action campaign sponsored by TaxCalc. You can view Minesh’s unbiased.co.uk profile here.
Many of my clients get very excited by investments that save them large amounts of tax such as Venture Capital Trusts. VCTs, with the 30% income tax relief, have become core to the tax planning work we do. An idea which I am now employing is using VCTs to gain smaller companies in the UK equity exposure. The client is not taking any additional risk but is getting a tax break for investing in the asset class. The role of tax free dividends in the longer term provides a source of income which can help to reduce drawings for business owners.
Bed and Breakfasting portfolios which are impregnated with capital gains are the other core tax planning tool we are focusing on with our clients. This presents a very timely opportunity to restructure investment portfolios, as there is a clear rotation away from corporate bonds to riskier assets such as equities, and whilst I do not see an immediate peril in the bond market a natural opportunity to capture gains and move into equities arises. I am reducing corporate bond exposure and instead using Absolute return funds to control portfolios volatility.
I read a lot and this reading reaps real business rewards. For example one of my largest clients has carried forward capital losses from some previously failed investments (not organised by us) but has substantial capital gains elsewhere. I researched this further and found a very good article in Money Management from Danny Cox ( head of Financial Planning at Hargreaves Lansdown) March 2013 issue. The article is headed TAX and has a section on capital losses – the HMRC guidance is that the individual may have to prove an economic advantage and not just a tax advantage in such cases. I find forming close relationships with tax advisers and accountants can be valuable in scenarios like this. In the above case I am meeting the client’s tax advisers to outline the planning and to ensure everything is in correct order. Thus demonstrating knowledge but showing prudence where financial and tax planning could be contentious.