FINANCE
ADVERTISEMENT FEATURE
IS CASH ALWAYS KING?
CRIPPS PARTNER SIMON LENEY LOOKS AT WHAT TO DO WITH SURPLUS CASH
Simon Leney
In our post-Brexit( or should that be post-referendum, pre-Brexit?) world we are seeing ever-lower interest rates, even the prospect of negative rates. Add to that the uncertainty about the strength of some banks and it is hardly a surprise the stock market is doing well as savers seek a home for their cash.
Sources of cash are varied but substantial amounts are becoming available. In prosperous areas such as west Kent, downsizers often unlock between £ 100,000 and £ 200,000. Inheritances also often produce six-figure sums in cash. And for some, a sale of, or retirement from, their business results in significant cash in the bank, even after tax on the sale.
All of these are an opportunity to take stock of your situation, ideally with the benefit of some unbiased advice. It ' s an unfortunate fact, but no surprise, that banks, investment managers, IFAs and the like, will be expert in the types of investments with which they deal, but less enthusiastic about anything outside that range.
Of course, downsizers will probably want to spend some money on new decorations, possibly even more substantial improvements, but however your cash comes about, tax-sheltered investments can be an attractive option.
The first of those is to use your available ISA allowances(£ 15,240 per person in the current tax year, £ 20,000 next). When invested in equities, this provides an opportunity for capital gains tax-free growth and tax-free income. Cash ISAs have lost their attraction due to the falls in interest rates, but a stocks and shares ISA is a central plank of any personal investment strategy.
For those who are working, the next step would be to use pension contribution allowances( currently up to £ 40,000 pa). These will provide income tax relief at the time of investment as well as tax-free growth on income until a pension is drawn. Income tax will however be chargeable on income being drawn from a pension.
Once these two investment vehicles have been used, consider venture capital trusts( VCTs), which offer further useful tax benefits. Up to 30 per cent of the initial investment can be claimed against any income, earned or otherwise, and dividends are tax-free. After five years a VCT can be sold free of tax, regardless of value. However they do have a higher risk profile than quoted stocks and shares, which should be kept in mind.
Of course, if you can afford to do so, giving away cash to help the next generation with housing costs and to reduce inheritance tax liabilities is a great idea.
Giving away a lump sum and then living for seven years means the value of the gift will be disregarded in calculating inheritance tax. This can be a double benefit for children, who enjoy an accelerated receipt of their inheritance together with a saving of the 40 per cent tax that may otherwise have applied. Some people misunderstand the discounting rules and think
that if they survive their gift by less than seven years, there will be a discount of the taxable value of their estate. The rule is that if there is tax payable due to death before a complete seven years have passed, the tax( not the gift) is discounted. But there can never be tax payable unless the gift exceeds the tax allowance( currently £ 325,000) and even then it is only the excess that is taxed. So the reality is that this discount does not often get used, and even when it does, we find that not much tax is saved.
You may be cautious about giving away too much in the way of capital, feeling the need to keep it for care costs perhaps. By investing your cash in a tax-efficient way you may find you have more income than you need. In that case a useful exemption for inheritance tax is available. If you give away that surplus income then the seven-year rule does not apply. The rules must be carefully followed but a series of such payments can gradually build up a nest egg for the next generation.
Careful strategic planning, with some professional help, can make sure your cash is put to work properly.
For further information please contact Simon Leney at simon. leney @ cripps. co. uk or call 01892 506005
Please note that we are not authorised investment advisers. We therefore cannot give you advice on individual investments and will refer you to someone who is authorised to give such advice.
www. cripps. co. uk @ crippslaw
About Cripps
Cripps is a key regional law firm serving clients nationally and internationally from offices in Kent and London. Recognised countrywide for both its commercial and private client work, Cripps is Legal Team of the Year( Midsize) in the 2014 / 15 STEP Private Client Awards and is ranked in the Top 25 Private Client Law Firms. The firm focuses on wealthier families, entrepreneurial businesses and the real estate sector.
Find out more at cripps. co. uk
This article gives examples and is intended for general guidance only.
156