Michael Lally says... | 01 Feb 2011

 The temptation for many investors when tax planning is to react to a high profile advertisement or media article for a particular tax saving product. I always advise looking at all the options together then prioritising on the basis of (a) whether they may or will need to draw down income or capital, (b) their tax position and (c) the level of risk they are prepared to accept. Also read the small print, understand the total annual running costs and seek expert independent advice for further clarity and guidance. For younger clients a combination of pensions and ISAs are an effective way of accumulating savings and possibly as a reserve for repaying a mortgage (especially if interest only). VCTs are highly tax efficient but - in a bear market - can perform very badly. So of course can ISAs and pensions (eg. SIPPs) potentially, but with these you can control the risk more effectively. A couple could save £213,600 in ISAs over 10 years (ie. before taking into account any growth, income and increased allowances). It is also important to coordinate professional advisors, especially in respect of CGT planning and pensions funding. Potential liabilities can be avoided by making use of the exempt transfers between spouses and, in the case of discretionary trusts, the use of hold-over relief elections (both into and out of the trusts). Where assets are being inherited, eg. from a relative’s estate, liaise with the solicitors to ensure best use is made of executors CGT allowances before they are appropriated or, where paper losses are involved, crystallising these to establish a rebate against IHT. With £10,600 of exempt gains currently, per individual, higher rate tax payers in particular should consider the use also of lower risk assets where all the return is in the form of capital gains. Finally consider crystallising paper losses, even if they are not needed now, as they can be carried forward indefinitely (although you/your tax advisor must keep track as HMIT certainly won’t remind you!