HOW WE HELP OUR CLIENTS SAVE TAX
Let us look at our work by outlining a case study for an Investment Banker client. His stated objective was to reduce his tax bill in 2004/05 and to report on the merits of using Film Schemes to recover tax on earlier years.
- In 2004/05 we had recommended a VCT investment of £100,000.
This investment was made in November 2004 when income tax
relief was at 40% and by January 2005 the £40,000 tax
rebate was in his hands.
- The £40,000 tax rebate was
used as the cash investment into a Sale and Leaseback Film
scheme, the entry price was 20% and with a full recourse
loan covering the remaining 80%, he would obtain a trading
loss of £200,000. Tax relief
at 40% on this amounted to £80,000.
- Sideways relief
used to send this loss back to the earliest year possible,
in this case 2001/02. In that year his basic salary had been £150,000
and he had a bonus of £100,000.
A stand-alone claim was made as this was a tax year already
settled and by June 2005 the £80,000 tax rebate was
in his hands.
- In 2005/06 the £80,000 tax rebate was used to purchase another Film, with a trading loss of £400,000. This will cover a high percentage of his bonus and will lead to a tax saving of £160,000.
- Post “A” Day
we are suggesting that future rebates go into his pension.
We think the message is clear; money makes money for those
who take professional advice.
- In January 2006 this client received a tax-free dividend from the VCT of £3,500. Hopefully the first of many to come.
2005/06 was the last year for 40% tax relief on VCT’s, so placed the maximum possible (£200,000) into a range of VCT’s. This led to a tax rebate of £80,000.
The moral here is that if you are still earning, are younger than 75, and are paying 40% income tax, you are worse off if you do not set up an immediate vesting pension plan.
This really is something you should consider, subject only to new rules under what is known as pension recycling! Contact us for more on this.
