Savings & Investments
Whether you want to review your current investment portfolio, start saving for a rainy day, or save towards yours or your loved one's future, you should arrange your money in the most tax efficient manner.
Are you expecting any inheritances in the future? Maybe your parents are reasonably well off? When the time comes will you require the money or could this be passed onto your children? Grandparents are a wonderful source of income from a tax point of view and it would be very worthwhile to sit down and talk through with the grandparents their goals and ambitions for their money, whilst also considering a financial plan to secure their grandchildren's future.
You may not realise that putting money into the grandchildren’s name is actually very tax efficient, including avoiding inheritance tax. The benefit of the grandparent gifting money to a grandchild is that it is a potentially exempt transfer of wealth. In the tax year 2012-2013 the sum of £3,000 of gifts can be made each year and amounts in excess of that could become free from inheritance tax provided the grandparent lives a further 7 years when it would no longer form part of their estate. Instead of it being taxed on their death it would now go straight to the grand-children with no tax at all.
Did you know that everybody including children have their own personal income tax and capital gains allowances? The grandparent could put money into their grandchild's name, taking advantage of these allowances to help grow a pot of money to help towards their futures.
If saving for a grandchild these would be held subject to a bare trust so that the children have an absolute right to the income and capital and hence can benefit from their tax allowances. They also have a right to the capital when they are 18. Because any income generated by the investment is taxed as the grandchild’s and it is probable that they will be a non taxpayer, this will be very tax efficient.
The growth orientated assets will also be taxed on the child and careful use of the child’s annual capital gains tax exemption, which is £10,600 in the tax year 2012-2013, will enable the gains to accumulate without any tax liability.
An ISA is a tax efficient savings vehicle. The money in your ISA can generally be accessed at any time. This is a tax wrapper. The wrapper around your savings give certain tax advantages. Think of the money saved as the sweet. The ISA is the sweet wrapper. Once the sweet is coated in the wrapper then it benefits from tax advantages. Take the sweet out, the tax advantages are lost. It is very hard to re-wrap a sweetie!
We can help you with most types of saving and investing, get in touch to find out more.
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