Tax & Estate Planning
Inheritance Tax receipts for April 2024 to February 2025 totaled £7.6 billion, £0.8 billion higher than the same period last year
Will Hale, CEO of Key Advice, said that the Government expects the records to keep on “being broken” with the Office for Budget Responsibility forecasting total receipts of £9.7 billion for the 2028/2029 tax year.
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Many people pay too much tax, either out of misunderstanding or poor financial planning.
Taxes can be levied directly (e.g. income tax) or indirectly (e.g. VAT on goods and services), your UK tax liability depends on your residence and domicile and you will be deemed a UK resident if you are in the UK for 183 days in any one tax year. It is important you can identify ways that you can save tax by ensuring that your financial affairs are run in a tax-efficient manner.
Inheritance Tax Planning
Top Tax Saving Tips
Move assets into investments that are exempt from capital gains tax. (Capital gains tax is charged on the profit made from the disposal of an asset);
Time the disposal of assets to spread over two tax years, wherever possible;
Carefully select assets to sell to minimise tax or generate tax-free income;
Non-tax payers to invest in products that do not deduct tax, or where tax is reclaimable;
Receive income from investments owned by the partner with the lowest tax band;
Make effective use of any tax breaks and gross-paying, tax-free investments (higher band taxpayers only.
IHT Essentials
Everyone’s estate is exempt from Inheritance Tax up to a certain threshold, otherwise known as the nil rate band (£325,000 in 2025/26).
Married couples and registered civil partners are also allowed to pass assets to one another during their lifetime or when they die without having to pay Inheritance Tax, as long as the person receiving the assets has a permanent home in the UK.
In the case of ‘spouse or civil partner exemption’, it may be possible to increase the Inheritance Tax nil rate band of the second spouse or civil partner when they die – even if the second spouse has remarried.
Gifts to charities and political parties are exempt from Inheritance Tax. You can also give away gifts or money up to the value of £3,000 every year under what is known as the ‘annual exemption’. This amount can all be given to one person or split between several people, and it can be carried forward for one tax year if unused. The threshold can only be transferred on the second death. If the first spouse or civil partner died before 1975 the full nil rate band may not be available to transfer.
Recent changes to Inheritance Tax legislation witnessed the introduction of the residence nil rate band in April 2017. This is an extra £175,000 allowance for passing on the family home to direct descendants.
DISCLAIMER The Information supplied within this piece is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor. The information does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management Limited shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication. The Financial Conduct Authority do not regulate tax planning or trusts.
Potentially Exempt Transfers (PETs)
If you distribute some of your wealth prior to death, there are other exemptions and allowances in the form of Potentially Exempt Transfers (PETs). From the day you give the funds away, the tax due on death is subject to a tapering over seven years. There are also exemptions using small financial gifts. Life Assurance can be a key component in inheritance tax planning as it is an astute use of trusts. Inheritance Tax represents a 40% charge on any assets above this threshold – the rate drops to 36% if you give away at least 10% of your estate to charity. Our Vintage Wealth Management team is fully qualified and highly experienced in all aspects of IHT. We will walk you through a range of solutions to help mitigate your IHT liability and direct your hard-earned wealth in the direction that you choose. Investments are made into a pooled fund, thereby reducing risk. It's important to remember that VCT shares are not liquid even when registered on the London Stock Exchange. The value of shares and income from them may go down as well as up and you may not get back the amount you originally invested.
Chargeable Lifetime Transfers (CLTs)
Understanding Chargeable Lifetime Transfers (CLTs)
A Chargeable Lifetime Transfer (CLT) is a type of asset transfer that is immediately subject to Inheritance Tax (IHT). These transfers often involve contributions to a trust and incur a 20% IHT charge on any amount exceeding the settlor’s Nil Rate Band (NRB).
Transfers made into a Discretionary Trust or to a company are classified as Chargeable Lifetime Transfers (CLTs). This classification means that such transfers are immediately subject to Inheritance Tax (IHT). If the value of the CLT exceeds the applicable Nil-Rate Band—currently set at £325,000 for the tax year 2024/25—then the individual making the transfer is responsible for paying the corresponding inheritance tax.
Defining Lifetime Transfers
Lifetime Transfers, essentially gifts, refer to the transfer of assets—such as cash, investments, or property—from one individual to another, a trust, or a company during the original owner's lifetime. These transfers can have a significant impact on inheritance tax and estate planning, as they can effectively reduce the size of your taxable estate and, consequently, your inheritance tax liability.
Chargeable Lifetime Transfers vs. Potentially Exempt Transfers
Chargeable Lifetime Transfers (CLTs) are distinguished from Potentially Exempt Transfers (PETs) in that they do not qualify for the same tax exemptions.
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Gifts: Outright transfers of assets, such as cash or property, to another individual.
Trusts: Transferring assets into a trust, which can be structured to minimize inheritance tax.
Assets: Transferring ownership or control of assets, such as businesses or investments, to others during one’s lifetime.
Any asset that may be subject to inheritance tax can qualify as a CLT, including:
Cash savings
Your home or any properties you own
Business property
Businesses and their assets
Life assurance policies that are not payable into a trust
Investments
The Seven Year Rule
Even though a CLT is taxed at the point it is made, it is still subject to the seven-year rule. If the original owner dies within seven years of making the gift or transfer, its value will be included in their Taxable Estate for IHT purposes.
If more inheritance tax is due, any already paid within the last seven years will be taken into account and deducted from the final bill.
DISCLAIMER: The Information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor. The information does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management Limited shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication. The Financial Conduct Authority do not regulate tax planning or trusts.
Enterprise Investment Schemes
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Enterprise Investment Schemes (EISs) are a tax-efficient investment product available to UK investors. They are particularly suited to those looking to defer capital gains or reduce potential inheritance tax.
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There are currently five tax reliefs available: Income Tax, CGT deferral, CGT exemption, loss relief and inheritance tax.
Income Tax relief:
Available only to individuals who are not connected with the company;
Potential relief of 30% on investments up to £1 million;
Shares must be held for three years to retain the relief;
There is a facility to carry back up to 100% of the investment to the previous tax year, subject to the annual limit not being exceeded;
Maximum tax relief is based on the lower limits and the investor’s actual income tax liability in the tax year in which the investment is treated as being made (i.e. either current year or previous year if carried back).
CGT Deferral relief:
Available to some trustees as well as individuals (individuals may be connected to the company);
CGT on gains made on disposal of any assets (unlimited amount) can be deferred if the gains are re-invested into an EIS (the EIS investment must be made within the period 1 year before and 3 years after the disposal to which the deferred CGT relates);
Deferred gains are brought back into account when the EIS shares are disposed of (but not on death);
There is no minimum term for which the EIS must be held for the purposes of CGT deferral relief.
CGT Exemption:
No CGT is payable on the disposal of the shares as long as: the investor received income tax relief on the shares that haven’t been withdrawn, and the shares have been held for at least three years.
Loss Relief:
Losses made on the disposal of shares in an EIS (less income tax relief received) can be offset against income in the year of disposal or the previous year instead of against capital gains (if required).
Inheritance Tax:
EIS shares will usually (initially) qualify for 100% Business Property Relief
This effectively provides complete exemption from IHT for the value of shares in an unquoted trading company
The shares must have been held for at least two years prior to the chargeable lifetime transfer or death.
If shares in a company qualify for EIS relief they will also qualify for BPR.
However, availability of this relief cannot be guaranteed because the conditions to qualify for EIS relief need only be satisfied for three years, so an EIS company may change and become one that does not qualify for BPR.
A £1 million limit to 100% relief is to be introduced from 6 April 2026 thereafter relief at 50% will be available.
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While we would generally consider these investments appropriate for sophisticated investors who wish to include some high-risk companies and funds within their overall portfolio, we would advise speaking with our expert team at Vintage Wealth Management to work out the best options for you.…As it is possible to lose all capital invested and tax relief benefits of an EIS, this type of investment is not suitable for more cautious or cautious/balanced investors.
Please note that advance assurance of these ‘tax advantages’ by HMRC is granted on the basis of the information provided. Any inaccuracies in this information could prejudice the reliefs available, therefore we recommend always seeking suitably qualified advice.
DISCLAIMER Don’t invest unless you’re prepared to lose all the money you invest. Enterprise Investment Schemes (EIS) are a high-risk investment and you are unlikely to be protected if something goes wrong. As it is possible to lose all capital invested and tax relief benefits of an EIS, this type of investment is not suitable for more cautious or cautious/balanced investors. Please note that advance assurance of these ‘tax advantages’ by HMRC is granted on the basis of the information provided. Any inaccuracies in this information could prejudice the reliefs available, therefore we recommend always seeking suitably qualified advice.
Venture Capital Trusts
Venture Capital Trusts (VCTs) offer individuals the opportunity to invest in smaller, less established and growing companies.Working in a similar way to investment trusts, VCTs raise money from individual investors who wish to invest in a company or portfolio of companies. Investments are made into a pooled fund, thereby reducing risk. It's important to remember that VCT shares are not liquid even when registered on the London Stock Exchange. The value of shares and income from them may go down as well as up and you may not get back the amount you originally invested.
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Tax Advantages
The main advantage of VCTs are the tax benefits. They have a 30% income tax rebate on the initial investment with no tax to pay on income or gains from the trust in the hands of the investor. As a UK resident, you can invest up to £200,000 per annum, providing you hold the investment for five years. The relief detailed below applies only to individuals (not trustees, companies or other types of investor):
Income tax relief is available within limits (maximum of 30% of the investment amount of up to £200,000 per tax year (i.e. £60,000 tax relief), or the investor’s actual income tax liability for the tax year (if less). This relief is available on the purchase of new ordinary shares only (unlike the reliefs below).
No capital gains tax on disposal for shares acquired within the £200,000 investment limit (this applies to new ordinary shares or those purchased second-hand, for example, through the Stock Exchange).
Dividends are exempt from income tax (except for the 10% non-reclaimable tax credit) – however, as dividends are likely to be low there should be a requirement for capital growth. This relief also applies to new ordinary shares or those purchased second-hand.
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There are a number of conditions that a company must satisfy in order for HMRC to approve it as a VCT.
At least 70% of the investment by value must be in qualifying unlisted trading companies (Qualifying Investments).
This includes companies listed on the Alternative Investment Market (AIM).The shares or securities which meet the conditions of the scheme and which were issued to the company must continue to be held by it.
From 6 April 2007, any money held by a VCT will be treated as an investment for the purpose of these tests. This 70% requirement means that it is possible for up to 30% of assets to be "blue chip" shareholdings.
No more than 15% of the fund must be invested in any single company or group.
At least 70% of the VCT's qualifying investments by value must be in new ordinary shares in qualifying companies.
This can include those with certain preferential rights.
At least 10% of the holding in each company must be ordinary shares.
The balance of the investments in qualifying companies can be in other shares or debt, such as debentures or other fixed or variable interest stock.
The VCT must not have retained more than 15 percent of the income derived in the accounting period from shares or securities.
In meeting these limits, a VCT cannot invest more than £1 million in total each year in any single qualifying unlisted trading company, the gross assets of which must not be more than £15 million before the investment and £16 million immediately after.
These increased figures apply from 6th April 2012. Prior to that date, the figures were £7 million and £8 million respectively.
The company must satisfy a number of other conditions broadly similar to Enterprise Investment Scheme (EIS) companies.
HMRC will be able to give provisional approval to a VCT if it is satisfied that the conditions will be fulfilled within specified time limits.
VCTs will initially have up to three years from the date of each share issue to meet both the 70% unlisted trading company and the 70% ordinary share requirements.
A company no longer needs to have a qualifying trade carried out wholly or mainly in the UK but it is necessary for it to have a ‘permanent establishment in the UK’.
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VCTs are high risk and extremely specialised investments, which is why we recommend seeking professional financial advice before making any decisions. Our expert team at Vintage Wealth Management will offer you further insight into how VCTs work and the benefits available to you to help you make an informed choice.
DISCLAIMER Don’t invest unless you’re prepared to lose all the money you invest. Venture Capital Trusts (VCT) are a high-risk investment and you are unlikely to be protected if something goes wrong. As it is possible to lose all capital invested, this type of investment is not suitable for more cautious or cautious/balanced investors. Please note that advance assurance of these ‘tax advantages’ by HMRC is granted on the basis of the information provided. Any inaccuracies in this information could prejudice the reliefs available, therefore we recommend always seeking suitably qualified advice.
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