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— investment advice —
the
manager
WINTER 2011
to keep risk low (although it will
still be much higher than in more
traditional investments). You should
certainly ask your advisor about the
predictable government-supported
returns provided by Feed-in Tariffs;
these were introduced in 2010 to
encourage greater investment in
renewable energy, but this investment
opportunity will close in April 2012.
Other tax efficient investment
opportunities are provided by Venture
Capital Trusts, which provide income
tax relief of 30 per cent; the maximum
investment allowed is £200,000 per
tax year and the investment must be
held for five years to retain the tax
relief benefits. As with ISAs, dividends
earned and gains made through the
rise of the value of the shares are tax
free. The minimum investment levels
vary, but are usually set at around
£10,000.
Enterprise Investment Schemes also
offer 30 per cent income tax relief on
a maximum annual investment of up
to £1,000,000 in any single tax year.
Allowances can be carried over from
one year to another, which is a useful
flexibility for those with fluctuating
income. The minimum investment
levels vary, but are usually around
£25,000.
These schemes also have other
advantages. For example, they can be
used to defer capital gains made in
the last three years and reclaim capital
gains tax already paid. In addition,
some or all of an investment into an
EIS should fall outside the investor’s
estate for inheritance tax purposes
(i.e. beneficiaries won’t have to pay
40 per cent tax on the investment, as
long as it has been held for at least
two years at the time of death). To
take full advantage of any or all of
these schemes, it is usually advisable
to engage the services of a tax
accountant.
On the (not very cheerful) subject
of inheritance tax, an alarming
number of people still make no
basic provision for this in their tax
planning. If no suitable provisions are
made, a person’s estate is taxed at 40
per cent on anything above £325,000
(although this allowance doubles for
married couples or civil partners).
While those instruments covered
so far are designed to reduce a tax
liability, there are other routes which
are designed to defer the payment of
tax, rather than stop it altogether.
Offshore Investment Bonds
(OIBs) are one such option.
Investment in an OIB can grow tax
free (or, at least, virtually so). Rather
than take a taxable income from
such an investment, it is permissible
to make annual withdrawals of
capital of up to five per cent per
annum for up to 20 years
until your original capital
invested is exhausted (five
per cent x 20 = 100 per
cent). During this time,
the capital that is not
paid out grows free of
income and capital gains
tax. Using this method
it is possible to defer payment of tax
for up to 20 years, by which time the
investor may no longer be a high-rate
tax payer.
As always, good advice is important.
Anyone can sort their own ISA out,
but investing in any of the schemes
outlined above and making the right
choices around pensions
and offshore bonds
needs professional
guidance.
Barclays Wealth is the wealth management division of Barclays. With
offices in more than 20 countries, Barclays Wealth focuses on private
and intermediary clients worldwide, providing international and private
banking, investment management, fiduciary services and brokerage. For
more information and help on how to implement the strategies outlined
on these pages in your portfolios, please contact: Matthew Wotton, head
of sports, media and entertainment for Barclays Wealth, 020 3555 2941 or
matthew.wotton@barclayswealth.com.