Tax Minimisation ?

spock007

Hi - 

I've filled my ISA with £20k this year and my pension has £40k for the year in it. 
I've made a significant amount over the CGT threshold (through shares in a normal trading account) and wondered re ways to minimise tax on this. 
I don't have a wife so can't do the gifting. I read that can do EIS/VCT but then capital is at risk.... 
Considering getting an accountant to look into this but interested to hear if anybody has faced similar....

Alexland

Do you have sufficient relevant earnings this tax year to use carry forward of unused pension contribution allowance from previous tax years?
In terms of the CGT issue can you sell the shares down gradually to be within your annual gains allowance?

spock007

Alexland said:

Do you have sufficient relevant earnings this tax year to use carry forward of unused pension contribution allowance from previous tax years?
In terms of the CGT issue can you sell the shares down gradually to be within your annual gains allowance?

It's a takeover situation and I expect to net £60k cash, no residual shares. 
I DO have some unused pension allowance from last few years.... so do you mean I can sell my shares and take the tax hit, but claw back government contribution from pension (I push myself into 20% band salary-wise so I would get 20% relief). That's actually a decent idea... thank you!

Dazed_and_C0nfused

How you benefit from additional pension contributions depends on the method you use to contribute.

If you pay via "net pay" then you will benefit by paying less tax and you will use less of your basic rate (or higher rate) tax band as your taxable income will be less.

If you make a "relief at source" contribution then 25% will be added to your contribution to make the gross contribution but it does not reduce your taxable income.  The gross amount increases the amount of your basic rate tax band so can save you some income tax if you are paying 49% income tax.

Alexland

spock007 said:

I DO have some unused pension allowance from last few years.... 

But you still need sufficient relevant earnings in the current tax year to support such a high pension contribution.

spock007 said:
so do you mean I can sell my shares and take the tax hit, but claw back government contribution from pension (I push myself into 20% band salary-wise so I would get 20% relief). That's actually a decent idea... thank you!

What's the hurry? Why not do it over a few tax years only contributing enough to keep you just below paying higher rate tax or only using the unused allowance from the earliest tax year? Still if you are already making high pension contributions then consider the lifetime allowance.

spock007

Thanks for the food for thought!

I wanted to ask another question. Is it legal to transfer money to a family member, get them to open an ISA and invest that money themselves. Then after say 5 years, they transfer it back to me? I think this is lawful, it's just that there is the 7 year rule re inheritance tax (person transferring money has to survive 7 years else amount gifted gets taxed) ? It's highly unlikely I'll do this as never good to mix personal money with family/friends but curious as to the legalities of that.

Dazed_and_C0nfused

Forgetting the legalities for a minute what makes you think the person you have given the money to will give it you back.

Albermarle

You can give your money to who you like, and they can then do what they want with it (including not paying you back)
As you say the only issue can be is that if when you die , gifts can be seen as deliberate deprivation of assets for IHT .
Or the same when you are alive for care costs calculations .

masonic

Yes, if you gift someone some money they can do whatever they like with it. You can even make it a loan with interest that they need to pay back. If you gift the money to them, it is entirely up to them whether or not they transfer it back to you in the future. If you make it a loan, you could have a legal claim over the money, and any interest you charged would be taxable income for you (which might not be a problem if all you are trying to do is defer some tax until you have a lower total income). Even with a loan, there is of course a risk of your borrower defaulting. So gifting (with some gentleman's agreement) and lending are 'capital at risk' activities just like investing in VCT/EIS products, but without the tax relief.

Aside from the inheritance tax aspect, there is also the deprivation of assets issue - if you try to claim means tested benefits in the future and this money could be construed as having been given away to avoid using it for your own living costs, you could be treated as still having it. Perhaps not a problem for someone who has squirrelled away £60k of disposable income this year and still needs to find somewhere to put the rest.

spock007

Thanks all for the info !
Another avenue I'm looking into is using previous years' unused pension contributions so I can put my money in a SIPP. 
This gives me 21% extra relief and keeps it as "mine" - might be the best route.

Albermarle

Another avenue I'm looking into is using previous years' unused pension contributions so I can put my money in a SIPP. 

You can not add more to a pension this tax year than your taxable earnings , up to a maximum of £40K gross ( including tax relief and any employer contributions ) 

If you have more than £40K taxable earnings this tax year then you can add more than £40K if you did not add £40K in the previous three tax years ( depending on employer contributions )