Your loss is your gain

Daniel Liddicott
July 2024 • 3 min read

Your loss is your gain

You may recall from my recent piece in Spotlight that capital gains tax exemptions have fallen yet again for the 2024/25 tax year. As a reminder, you can now realise gains of up to £3,000 before having to pay capital gains tax (CGT). This allowance was £6,000 last tax year and £12,500 the tax year before that. The reduced £3,000 capital gains exemption affects those of you with General Investment Accounts (GIAs) in particular, as these are not sheltered from CGT, unlike your ISAs and pensions.

It is now more likely than ever that moving funds from your GIAs into your ISAs and/or pensions may result in the need to pay some CGT, at 10% or 20% dependent upon whether you are a basic, higher or additional rate taxpayer. It is important to understand that you only “realise” a gain if investments in your GIA are sold, which is the case if the funds are being withdrawn or moved into an ISA, for example.

The reason for carrying out this strategy year upon year has been to gradually move funds out of the less tax-efficient GIAs into the tax-efficient ISAs and pensions, which are sheltered from paying tax on any future capital gains.

A key factor that we can use to help you to reduce or, in some cases, completely remove the need for you to pay CGT on gains within your GIAs is to register any losses made in previous tax years. You can actually register losses made in any of the previous four tax years, to be used to offset against any gains that you make in future. And you can carry these valuable losses forward indefinitely until used. Example incoming:

You can now “realise” gains of up to £7,000 without any CGT payable.

Unfortunately, these losses are not automatically registered with HMRC. You can do this either in your tax return for 2024/25 if you usually submit these, or you can write to HMRC instead. We are putting together a guide and letter template that you can use to send to HMRC to register losses to make the process as easy as possible.

We are currently looking back through the previous few tax years to determine who has made losses that can be registered and used moving forwards – if this is you, you should expect to hear from us in the next few months.

Whilst, generally speaking, falling valuations of your investments is a negative experience, we can help you to make the most of these. Your past loss can become your future gain.

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Your loss is your gainJemima Thomas2025-01-28T10:03:08+00:00

Autumn Statement 2015

Solomons-financial-advisor-wimbledon-blogger

The Autumn Statement 2015

As ever, the Chancellor said a lot, made some unexpected changes and announced things that will happen and re-announced those that were already planned (all Chancellors seem to do this). In any event, the short story for most is that landlords are on the radar. Stamp Duty will be rising by an extra 3% for those buying a second property (or more) in addition to the changes already announced about interest relief.

In addition capital gains tax looks set to be something that is now much more closely inspected by HMRC and the payment for Capital Gains Tax on property appears to be moving to a pay at the time, rather than wait until the following January, which in some instances means bringing forwards the payment date to HMRC by potentially 22 months. The details are to be finalised.

The rumours about changes to tax relief on pensions changing were given further credibility with research into the impact of changes to the current 20%, 40% and 45% relief being finalised by March next year, so we would expect an announcement in the Budget next March. If I were a betting man (I’m not) I’d suspect that tax relief will become a single rate, of either 25% (which would be more logical – at least this has some link with the 25% tax-free cash) or 33% (you pay £2 we [Govt] pay £1).

In any event, our APP – the one you and your friends can have for free on iPad, iPhone or android platforms has been updated with changes appropriately.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Autumn Statement 2015Dominic2025-01-28T09:53:35+00:00

Business Owners and EIS

This item is aimed at business owners and how an EIS might be of use.

Many business owners are growing increasingly frustrated about the tax associated with extracting profit from their companies. Often referred to as “double taxation”, a company owner must first face corporation tax on profits made by their business and again when they decide to pay themselves a dividend/salary. It can at times, feel like you are working for HMRC.

An Enterprise Investment Scheme (EIS) can be used to extract profit from a business tax efficiently. EIS was introduced by the UK Government in 1994 in order to induce investment into UK smaller companies. In order to make investing in smaller companies more attractive, compensating the additional risks, there are a number of tax reliefs available through EIS investments (providing you hold your investment for at least three years).

Income Tax Relief	CGT deferral	IHT relief
Reduction in income tax liabilities amounting to 30% of the total investment	Facility to defer paying CGT on all, or part, of a chargeable gain by investing the gain into EIS qualifying shares	EIS companies qualify for Business Property Relief (BPR)
Relief can be applied to the current or previous tax year	Investors can defer CGT by using EIS up to 12 months before crystallising gains or up to 36 months afterwards	As long as shares have been held for 2 of the last 5 years and are held at time of death and remain BPR qualifying, the value of the EIS investment will count as part of your estate but will have a nil value for IHT purposes
The maximum amount of income tax that can be claimed is £300,000 for the current tax year and £300,000 for the previous tax year
Relief cannot exceed the amount which reduces an investor’s income tax liability to nil

Business Owner – Double Tax

Mr Williams, normally a higher rate tax payer, owns a small business. He pays himself a £10,600 salary per year in order to stay within his personal allowance; no income tax is paid on this amount. In addition to this salary he pays himself a dividend each year which attracts an income tax liability. However, he is still frustrated with the amount of tax paid on the dividends.

If Mr Williams pays himself a £50,000 dividend, he will owe 25% (£12,500) in income tax on this (once we take the tax credits into account). This will leave him with £37,500 of net funds in his account after paying the tax.

If Mr Williams invested £50,000 into an EIS, he will be entitled to 30% income tax relief (£15,000). This tax rebate can be used to wipe out the £12,500 due on the dividend. It also leaves him with an extra £2,500 of income tax relief to set against other income tax he has paid across the current and/or previous tax year.

He is left with a £50,000 EIS investment, which he can liquidate once he has held the investment for three years. Providing the EIS investment has, at least, preserved its value Mr Williams has saved £15,000 in tax as a result of this investment.

Any growth within his EIS investment is tax free, as per the EIS rules.

My example, implies that Mr Williams has adequate resources elsewhere, so that he can invest £50,000 rather than it being needed for income. The word or note of caution, is that an EIS is obviously an investment and at the higher end of the risk spectrum (though running your own business obviously carries risk). Whilst investing in smaller companies often involves higher levels of risk and worse levels of liquidity, many investment companies offer EIS investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? – get in touch.

Dominic Thomas
Solomons IFA

Business Owners and EISDominic2025-01-27T16:09:47+00:00

“A-List” you don’t want to be on

The Inland Revenue, these days known as HMRC, yesterday published its list of 1,172 “aggressive tax avoidance schemes” which are under investigation. These are the sort of schemes that the media has been providing significant coverage and delighting in the opportunity to have a pop at an “A-List” celebrity or two… or rather more. The list is a 2 page document of numbers, looking rather like a sequence from the film “The Matrix” which I asked my design team to parody to make the point. Like it?

Tax avoidance is perfectly legal, tax evasion is not. Tax avoidance includes everything from investing in an ISA, pension or using your annual capital gains allowance. It would also include moving savings into a lower or non-taxpayer’s name to avoid a higher rate of tax on an albeit puny amount of interest. These are of course “schemes” that are manufactured by the Chancellor and HM Treasury to satisfy number of aims. Firstly, to provide a tax-break for voters. Secondly to encourage saving and therefore reduce reliance on State support and finally to encourage trade, which is how we create jobs, raise taxes and pay our way. Most people with a modicum of intelligence will use tax avoidance schemes if they can.

Tax evasion is illegal, it always has been. Tax evasion is the deliberate and wilful, non-payment of owed taxes. This is effectively the running away to Rio with your millions out of the reach of HMRC. Society loses out and society is cheated and if the tax gap figures are to be believed this amounts to between £31-£35billion each year.

Aggressive tax avoidance schemes are a grey area, hence we are in this mess. To suggest that they sail close to the edge of the rules is fair. Some schemes deliberately creating or manufacturing losses, or moving money around offshore to avoid the UK tax system. As with most things, some of this is more obviously close to evasion than others. The motivation behind it all is to pay less tax, not necessarily to have a fantastic investment return. However in the context of 45% or 50% tax rates, the tax saving is of course a very healthy return. Invariably those that market and manufacture these schemes are paid handsomely (some might say excessively) for their cut of the scheme. For example on £100,000 investment, which might save £100,000 of tax a charge of £15,000 is not uncommon. The motivation is to save tax, because some people pay huge amounts, which they believe is unfair. This is probably due to a belief that Government has no real idea about how to spend wisely. It is often coupled with the idea that personal control over personal wealth is a defining feature of real freedom.

My view is simple. It isn‘t surprising that people want to reduce their tax bill. The tax system could be both simple and fair, but it is highly complex. I believe that this is deliberate. Complexity serves the very wealthy, who are also those with power. However some of these schemes are used by more “ordinary people” not simply the super-rich. People that fundamentally believe that they pay more than their fair share of tax. This is where the debate or argument needs to be had, as there is little real prospect of Governments (of any persuasion) having a simple Tax and Trust system, despite deceptive terms like “Simplification”.

Whatever your view, HMRC are now investigating a huge number of schemes, each of the numbers represents a scheme number. HMRC now has the power to simply take money from your bank account. This process is very much a case of guilty until proven innocent and whilst some will be, not all are, yet this approach could have a very damaging impact. Of course, those that peddle the schemes are usually covered by water-tight contracts with clauses waiving any responsibility and point to “Queen’s Council” as opinion not “fact”. Hmmm.

Anyway, we will not use schemes that “sail close to the edge” of tax rules. We will use allowances and avoidance tools of course, but not the type that land you in trouble with HMRC. There will be no need to dodge bullets…

Dominic Thomas: Solomons

References:

HMRC Avoidance: http://www.hmrc.gov.uk/avoidance/

HMRC strategy: http://www.hmrc.gov.uk/budget2013/evade-avoid.htm

“A-List” you don’t want to be onDominic2025-01-27T16:13:53+00:00