by Andrew Duncan
For those of us who slave away to make for a more gentle pasture on retirement the lesson constantly driven home by colleagues and financial advisors was that equity is the place to be. In structuring an estate plann, one of the critical elements has been to separate appreciating assets of the investor into a Trust or like entity to avoid the (substantial) estate duty levy of some 20%. However, I think our notions of sensible investment and returns have taken a hard knock after the unexpected increase by the Finance Minister of associated wealth taxes being CGT, from a maximum of 10% to 13.3% and dividends tax from 10% to 15%. If you consider the position now, with every dividend received, one’s estate is suffering from an immediate tax not that different from estate duty.
In the new investment planning world therefore, it is not necessarily estate duty that is seen as the bogey man. Under innovative structures that we are now planning and creating, the emphasis is on capital appreciation within structures that avoid both dividends tax and at the end of the day, estate duty and CGT. This innovative approach assists both investors who are starting off and others who have invested in their own names. What has come as a welcome surprise is the flexibility that the new Companies Act has provided to the investment entities in allowing for partially paid up shares when combined with the asset-for-share exchange under Section 42 of the Income Tax Act.