Leaving less to the taxman and making use of fund benefits
nnnThe new inheritance tax is closer to reality. I know the details have not yet been finalised but I'm quite worried about ignoring it given the military has been doing things pretty quickly lately. If we wait to act we might end up paying a high tax. I'm 65, my wife is 62 and we have two sons and two daughters. Our combined assets include two shophouses for rent, a few land plots in Thailand and an apartment in England that generates rental income. We also have investment in private and government bonds and some in equities. What should we do to keep our tax payment as low as possible?
1. Make a gift. You may be able to beat the inheritance tax by giving away some of your assets to your wife and kids while you are still alive. I am sure your popularity will soar with your children. But if the junta is clever, inheritance and gift taxes usually are introduced in tandem. Mind you, it is advisable to keep the primary residence in your name until the day you die. You don't want to be kicked out of your own home in case your kids become ungrateful.
2. Corporatise your assets. If you own a company, it may make sense to sweep your fixed assets into the company's name and divvy up shares to your wife and kids. In this way, when you die the assets are already in the company. There is no need to transfer anything to the beneficiaries since they are already shareholders. I suspect the Revenue Department will go after tangible assets like land and properties first for inheritance tax. Shares in private companies will probably be off their radar screens for now.
3. Offshore Trust. The apartment in England will be subject to UK taxes. Much will depend on how the transaction was originally structured and whether you used your name or an offshore company to own the property. Setting up a trust to hold offshore investments and properties will mean these assets are no longer part of your estate and will not be subject to an inheritance tax. However, the rules for trusts are complicated so you must get advice from a financial planner.
4. Buy life insurance. If you take out a life insurance policy, it won't reduce the amount of the inheritance tax, but the payout may make it easier for your surviving family to pay the tax bill. It could mean they can prevent the family home from being sold. But if you do this, make sure the life insurance payout goes into a trust — if not the payout will make your estate bigger and thus trigger more tax.
nnnI'm 45 and work in a private company. I've never invested directly in the stock market before. I'm not rally afraid of taking the risk, but I'd rather invest in something I can just leave alone and appreciate without consuming too much of my time. I've only invested in Long-Term Equity Funds (LTFs), but am now considering Retirement Mutual Funds (RMFs) in order to max out on the tax benefits. My dilemma is I'm not sure if I could get higher returns from investing in just stocks. Could you please elaborate on the pros and cons of both choices and which one suits my profile, or suggest other options?
It's not every day you get two free lunches from the Revenue Department. I urge you to take full advantage of the available tax deductions. Both LTFs and RMFs enjoy almost identical tax deductions, i.e. 500,000 baht or up to 15% of gross income, whichever is higher. The only difference is if you are a member of a provident fund, your contributions are counted as part of the RMF limit.
If you have no prior experience in direct investment in the stock market, I would definitely use mutual funds. Go for low-cost index funds as your core holdings and maybe add one or two actively managed funds with at least a 10-year track record of outperforming its index. Last but not least, invest for the long term (five to 10 years) and invest often by using dollar cost averaging.