The Liberal Conservative Coalition has not really made any changes to income tax proposals previously put in place by the Labour government. The top rate tax of 50% and the freezing of personal allowances and the higher rate tax threshold remains in place, creating an army of “higher rate” taxpayers over the next five years.You needn’t be earning astronomical amounts to fall into this category and in light of this, you should be seriously looking at pensions, ISAs, VCTs (Venture Capital Trusts) and other tax efficient investments in order to protect your savings and your ability to help your children and grandchildren.
VCTs are beginning to become popular in any trawl of a fund supermarket. Similar to investment trusts, they are run by fund managers who are usually members of a larger investment group. Investors can subscribe or buy shares in a VCT which then invests in small higher risk trading companies whose shares and securities are not listed on a recognised stock exchange, providing the funds to help them develop and grow. Investing in a VCT entitles you to various Income Tax and Capital Gains Tax reliefs.VCTs also have the advantage of being exempt from Corporation Tax on any gains arising from disposal of their investments.
Investment funds have also been impacted by changes in the rates of Capital Gains Tax (CGT) with two rates – 18% and 28% – replacing the previous flat rate of 28%. Independent taxation planning strategies for couples for example will become even more important as will the tax efficient investment strategies that can be used to mitigate CGT, including the self select ISA and VCT which are both free of tax.Previously, investment bonds were thought to be a better home for income portfolios and collectives for capital growth. Now, with CGT rates increasing, the pendulum may have swung slightly in the direction of bonds, even in the case of some capital growth portfolios.
