Have you considered the form in which you are holding your assets and investments?
The differential between the income and capital gains tax rates is now 32 percent. In addition, following the Budget on 23 March 2011, Entrepreneurs' Relief has been doubled so that, for those who qualify, from 6 April 2011 the first £10 million of capital gains will now be taxed at 10 percent. Both of these measures mean capital returns have a significant tax advantage over income returns.
Certain investment structures will be at an advantage where returns are taxable at the capital gains tax rate rather than as income. Strategies which allow income to accumulate in tax efficient ways may also be of interest. Whilst assets values are still relatively low, changing investment structures could be explored, so than any future returns deliver your longer term objectives.
Investment structures can take many different forms. You may want to consider:
- holding investments in a 'wrapper' rather than holding direct investment in individual assets;
- vehicles for trading, property holding or wider investment activities combined with tax efficient extraction techniques;
- how investments are held across the family as this can affect the tax rate applied to returns.
There is considerable uncertainty over how long the rate of capital gains tax will remain at 18 percent. The key question is whether the capital gains tax rate change has merely been postponed. It is possible that tax rates might change in the future and therefore careful consideration should be given to all the issues before making any irreversible alterations to your investment structures.
If an individual is moving abroad or is likely to be working outside the UK for a period of time it is important to address the tax implications of temporary or longer term emigration.
