At this time of year many of our clients are drawn towards tax planning. Indeed who could possibly resist the tempting offers available from many of our high street bank and building societies advertising the dizzy high rates within cash ISA’s of around 1.50% for some of the better instant access accounts. After five years of near zero base rates courtesy of our dear friends at the Bank of England we cannot blame anyone for scurrying around chasing the best buy tables nor the bank or building societies for gratefully receiving the business...
But as always let’s have a little common sense here. The new cash ISA limit for the 2014/15 is £5,940 (however, following last week’s budget this will increase to £15,000 from 1st July 2014). On a local level some of the better rates on offer include the Furness Building Society at 1.50% or the Cumberland Building Society who pay 1.30%. There are higher rates available but often with long fixed terms attached (Halifax for example who pay 3% but on a 5 year fixed rate ISA).*
My point is if you invested your full cash ISA allowance in the coming tax year on the 6th April you would receive just £89.10pa. This is not even keeping pace with inflation** yet many people do have tax efficiency at the forefront of their mind.
As a holistic financial planning firm we can also advice clients with the use of Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS). Although completely different vehicles compared to cash they often feature on clients agendas at this time due to the tax planning features. These are complex, higher risk investment vehicles whereby there is a change that all capital can be lost within the investment, aimed at sophisticated investors which invest into start-up companies (think dragons den) with a higher risk of failure, however to encourage investors the government offer tax relief of between 30% and 50% and losses can be offset against tax in certain circumstances although tax benefits are not always guaranteed.
Financial planning is not all about tax planning though. When I was a new recruit many years ago in Barclays bank my manager at the time used the phrase “never let the tax tail wag the investment dog”. ISA’s are important, VCTs or EIS’s can be important and tax planning will always form a part of your individual planning needs, but it should not and will not lead the way.
* source http://moneyfacts.co.uk/compare/savings/accounts
** inflation presently 1.70% using CPI figures obtained from www.bankofengland.co.uk on 25th March 2014
Please note that these investments are subject to the tax treatment of the individual investor at the time and may be subject to change in the future.