St. James's Place Tax Guide 2000-2001 - Hardcover

Über die Autorin bzw. den Autor

WALTER SINCLAIR FCA has been a tax specialist for over 30 years, having been a tax partner with two leading firms and now acting independently. He has written many articles for various journals and the national press. He has been the author of the St. James's Place Tax Guide since its first publication as the Hambro Tax Guide in 1972.

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The seven ages of tax planning

Although tax planning is important at all stages of one's life, different features may be relevant at particular times. There follows a summary of particular tax planning points to remember at seven selected 'ages':
(1) Childhood.
(2) Student days.
(3) Early working life.
(4) Newly married.
(5) Parenthood.
(6) Middle age.
(7) Retirement.

Childhood
Tax planning for children normally involves other people such as their parents and grandparents. A chief objective is to provide for education and maintenance in the most tax-efficient way. Educational schemes may have become less attractive in view of, for example, the withdrawal of life assurance relief. However, lump sum school fee payments in advance by grandparents may prove of value in saving higher rate income tax and inheritance tax.

Older children may work in the family business at weekends and during the holidays, in which case a reasonable salary should be paid. This will be tax free to the extent of the unused personal allowance (#4,385). To avoid any National Insurance contributions the salary should be kept below #76 per week. Also, older children might occasionally buy and sell shares and thus make use of their annual capital gains exemption (#7,200).

Other tax planning points to note include:
(1) Changing wills to include new children
(2) Settlements by grandparents
(3) Repayment claims for children
(4) Gifts to children to save inheritance tax
(5) Accumulation and maintenance settlements
(6) Discretionary settlements
(7) Paying income from settlements for maintenance and education with possible tax repayments

Student days
If you are a student (post-school), you will normally have attained your majority and this facilitates tax planning. In particular, none of your income will be assessed on your parents even though it arises from gifts which they make to you.

Your single personal allowance (#4,385) will normally cover income from jobs, investments, etc before you pay any tax. Also, income distrib-utions from certain settlements are likely to entitle you to reclaim at least part of if not the entire 34 per cent tax already suffered. Your parents and grandparents might save inheritance tax by making gifts to you or in trust. If you invest the money given to you directly in stocks and shares you will have the annual exemption (#7,200) to cover any capital gains.

Early working life
In your early working days you may well be able to benefit from some of the tax planning points regarding employments and businesses, noting particularly new businesses. If you work over-seas in a business or employment, some tax benefits may result.

Make sure that you claim all the expenses to which you may be entitled in your employment or business including a proportion of your home expenses if relevant. Whether you are employed or self-employed, you should consider pensions or personal pension arrangements as soon as practicable. These provide a very tax-effective way of providing for your security.

Newly married
When you marry, the opportunity arises for the parents and grandparents on both sides to make gifts and settlements, using the special inheritance tax marriage exemptions or otherwise. Also they should re-examine their wills.

Particular tax planning matters for you both to consider include:
(1) Wife's salary
(2) Independent taxation of husband and wife - separate rates and allowances for income and capital gains.
(3) House purchase
(4) Life assurance
(5) The making of new wills

Parenthood
This is the time when you are likely to have a growing income but also to incur the largest expenses. Gifts and accumulation and maintenance settlements made in favour of your children by their grandparents are tax-efficient ways in which the gap can be bridged.

As you progress in your employment, business or profession, the relevant tax planning points become even more important. Particular matters to note include new businesses and incorpor-ation. Also, you will be well advised to improve your life assur-ance and pension or personal pension cover as appropriate. You may work overseas or even completely change your domicile and residence if, for example, you become extremely well-to-do.

As you become more wealthy, capital tax planning will grow in importance, including capital gains tax. Inheritance tax planning should include an examination of gifts and settlements, charitable gifts and equalisation; attention to your will; the protection of family companies and the provision of funds to pay the tax. Furthermore, assets producing income and capital gains should be split between you, so as to maximise the benefits of indepen-dent taxation.

Middle age
You will still need to consider the relevant business or employment tax planning points as well as life assurance, pensions and personal pensions. Even if your earlier pension cover was inadequate, there is scope for compensating for this in later life.

As your children come of age, consider passing them income producing assets. When they marry, make use of the appropriate inheritance tax exemptions, thus guarding against tax payable if you die within seven years. Cover larger gifts by life assurance. When they in turn have children, consider accumulation and maintenance settlements in favour of your grandchildren.

Capital tax planning is vital during this period and if you can afford it, you should make gifts and settlements to pass on your wealth during your lifetime. Also, provide for the payment of any inheritance tax. If you have a family company try to guard against future heavy inheritance tax on its shares and help succession by passing on shares to the next generation. Should your house be larger than you need, consider selling and re-investing or gifting the proceeds.

Retirement
Take advantage of the tax planning opportunities arising when your pension becomes due, such as taking your full tax-free lump sum entitlement or deferring your benefits. If you have a family company or business, maximise your capital gains tax retirement relief on sale or gift. At the same time, use the limited capital gains tax gifts election if appropriate.

Also, do not overlook the valuable inheritance tax business relief and agricul-tural relief. These will eliminate or substantially reduce the inheritance tax payable if you die within seven years of a gift. Since more of your income is likely to arise from investments, you may be able to claim repayment of the income tax deducted at source (excluding dividends). If your respective incomes are sufficiently small, you may both be entitled to age relief, together with a higher married couple's allowance.

With the sale of your business and perhaps house, you will have the chance of reviewing your will and making gifts, including settlements. If you have surplus funds, then gifts to charity should be considered, being free of inheritance tax and capital gains tax; whilst the purchase of an annuity will increase your income but reduce your estate.