Tax planning
Advice on structuring your finances tax efficiently.
The UK tax system is notoriously complex, but the benefits of structuring your finances tax-efficiently can be huge. We can help you to do this while ensuring you are making the most of the available allowances, so you won't pay any more tax than you need to.
Using your tax allowances
The Government gives you various tax allowances and reliefs each year and making the most of them can save you a lot of money. We can structure your finances to ensure you are making the most of your allowances, including those for:
- Income tax
- Capital gains tax
- Dividend income
- Contributions into ISAs, pensions and other savings accounts
Tax rates and reliefs depend on individual circumstances and may change.
Making sure your investments are tax-efficient
The more tax you pay, the harder your investments must work to achieve the same returns. Our financial planners can structure your investments tax-efficiently – from using simple accounts such as ISAs to taking advantage of your annual capital gains tax allowance and setting up complex tax-advantaged investments. Please do bear in mind that all investments contain a certain degree of risk, so you could end up with less than you originally contributed.
Saving tax when in retirement
Whether you are saving for retirement or already taking an income, our financial planners can help you to make the most of the available allowances and structure your finances in the most tax-efficient way.
Some of the areas we help clients with most often include:
- Making pension contributions, including using pension carry forward
- Taking income from your other accounts, such as ISAs
- Continuing to manage and utilise your available tax allowances, including personal savings allowance, dividend allowance and capital gains tax allowance
- Recommending a withdrawal strategy in retirement to optimise your tax position according to your objectives
Retirement income – structuring your finances to make your money go further
VCTs, EIS and other more sophisticated investments
Our financial planners can help you with more sophisticated tax-efficient investments, including Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS), if suitable for your circumstances. These investments offer investors great tax benefits as an incentive for their high-risk nature.
VCTs and EISs are higher risk investments that aren’t suitable for all investors. You should not invest unless you are prepared to lose all the money you invest.
VCTs are designed for UK resident taxpayers with an investment time horizon of greater than five years, which is the minimum holding period to qualify for income tax relief. Tax reliefs depend on individual circumstances and may change. VCTs may be difficult to sell at a price close to the value of the underlying assets or at the time of your choosing. They should only be considered when you have fully explored other planning opportunities and only form a small part of your portfolio. You should only subscribe to them on the basis of the Offer Document and you must carefully consider all the risks contained in that offer document.
Frequently asked questions about tax planning
Income tax is tax you pay on income from sources such as employment or a pension. Most people have a tax-free personal allowance for income. This is currently £12,570. Basic-rate tax is then charged at 20% on income between £12,571 and £50,270. Higher-rate tax is charged at 40% on income between £50,271 and £125,140, and additional-rate tax is charged at 45% on income over £125,140.
In Scotland, there are five different bands for income tax. Starter-rate tax is charged at 19% on income over £12,571 to £14,732. Basic-rate tax is charged at 20% on income over £14,733 to £25,688. Intermediate-rate tax is charged at 21% on income over £25,689 to £43,662. Higher-rate tax will be charged at 42% on income over £43,663 to £125,140 and top-rate tax will be charged at 47% on income over £125,140.
Capital gains tax is a tax charged on profit when you sell or ‘dispose of’ an asset that has increased in value. Disposing of an asset can include giving it away as a gift or swapping it for something else.
For the 2024/25 tax year, everybody receives a tax free allowance of £3,000. Any profits under this amount will not be taxed. From 30 October 2024, the rate of capital gains tax is either 18% or 24%, depending on whether you pay basic-rate or higher-rate income tax. The rates of CGT charged on gains on property disposals that do not qualify for 'private residential relief' is also 18% or 24%.
An Individual Savings Account (ISA) is the most common and simplest account for tax-free saving and investing. Money held in ISAs is free from income tax and capital gains tax. There is a limit on how much you can pay into an ISA each tax year and the annual ISA allowance is currently £20,000.
Everybody receives an annual allowance for dividend income received from shares held outside an ISA. The dividend allowance is currently £1,000. In 2024/25, this allowance will be reduced to £500. Any dividend income above this amount will be taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers and 39.35% for additional rate taxpayers.
Venture Capital Trusts (VCTs) are ‘pooled’ funds that invest in smaller and younger companies. VCTs are high risk as these companies can struggle and fail. To offset these risks, VCTs offer tax benefits. These include a 30% income tax rebate on investments up to £200,000 each tax year, but only if you have paid the amount of tax being rebated and stay invested in the VCT for a minimum of five years. Shareholders also benefit from tax- free dividends and the sale of VCTs is not subject to capital gains tax. There is a limited market for VCT shares and shareholders are dependent on the VCTs to buy back shares at a discount.
The Enterprise Investment Scheme (EIS) is a higher risk investment scheme that allows direct investment into small, unquoted companies (those that are not listed on the London Stock Exchange). Similarly to VCTs, EIS offers a 30% income tax rebate on investments up to £2 million. However, you must have paid the amount of tax being rebated and hold the shares for at least three years. In addition, the EIS offers capital gains - free returns provided the EIS has not lost its qualifying status - investors also benefit from income tax loss relief when an investment fails. Finally, investors can choose to defer capital gains by investing in an EIS and benefit from business relief, subject to certain criteria being met.
Please note that there is no market for EIS company shares and investors are reliant on the EIS fund manager to dispose of investments.
The Seed Enterprise Investment Scheme (SEIS) is a higher risk investment scheme similar to EIS and encourages direct investment into start-ups. However, the tax benefits are more generous than EIS as these companies are younger and may not have fully developed a product or service yet. You receive a 50% income tax rebate on investments up to £200,000 as long as you have paid the amount of tax being rebated and stay invested for at least three years. Investments in SEIS also benefit from capital gains free returns and income tax loss relief provided conditions are met.
Please note that there is no market for SEIS company shares and investors are reliant on the SEIS fund manager to dispose of investments.
EIS and SEIS are for experienced investors who can tolerate higher risk. The smaller, early-stage companies invested in are difficult to value and may take a long time to mature and sell to an acquirer or list on the London Stock Exchange. You should only consider these once other planning opportunities have been fully explored and only invest money you can afford to lose. Tax reliefs depend on individual circumstances and may change.
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This information is for UK residents only.
If you are a US-connected client of Evelyn Partners, see our US website.