As we encounter turbulent times in Stock Market, and suffer higher rates of income tax, it is important to consider tax efficient investments. Obtaining tax reliefs on investments can help cushion the volatility of investment values.
With all investment planning it is essential to take proper advice from a qualified investment adviser to ensure any investments are appropriate to your circumstances; but to provide a flavour of tax efficient investments the following could be considered:-
National Savings – These cash deposits should not be overlooked, often providing tax free and index-linked returns.
Individual Savings Accounts (ISA’s) – For individuals paying income tax, it is important to consider investing in an ISA. For the current tax year up to £5,340 can be invested into the cash component of an ISA and £5,340 into the Stocks and Shares component, or alternatively any amount up to £10,680 can be invested into a Stocks and Shares ISA p.a. As well as interest and dividends being tax-free, no Capital Gains Tax (CGT) is payable on gains on disposals of shares held within an ISA – both of which will be particularly advantageous for higher rate taxpayers.
Personal Pensions – Contributions to a personal pension by an individual will attract tax relief at the individual’s highest rate of tax. Given that the relief could be up to 50%, this can be an extremely tax efficient way of providing for retirement. The rules surrounding the level of qualifying contribution which an individual can make are complex, and the amount of taxable earned income and contributions to the pension by an employer in the current and previous years has to be considered.
For the more adventurous, investments which qualify for tax relief under the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and Business Premises Renovation Allowance (BPRA) can provide a variety of reliefs, from income tax, CGT and inheritance tax. Such investments are sophisticated though, and specialist advice is required.
With all investment considerations it is prudent not to let “the tax tail wag the commercial dog” – but tax is an important issue which should be factored into any decision making process.
David will be speaking at an ‘Investment Update’ on Thursday 10 November at Haughley Park Barns, Stowmarket. For more information visit www.ensors.co.uk/events/