The UK tax regime offers many opportunities to be tax-efficient with your investments, says Carl Lamb
There are many different factors to consider when building a financial plan for clients. Investment performance is, of course, important but it is also critical to ensure that we take into account the potential tax liability that comes with investment returns.
ISAs are one of the basic building blocks of a tax-efficient investment strategy. The ISA limit for the new 2019/20 tax year remains at £20,000 which can be held in cash investments, stocks and shares or a mixture of both. Returns on ISA investments are largely free of income tax or capital gains tax while they remain in the ISA framework.
The ISA family also includes Lifetime ISAs, which aim to help build retirement savings or fund the purchase of the saver’s first home, and Junior ISAs for children.
Pensions remain a key element of a tax-efficient investment strategy. Contributions to pension schemes qualify for tax relief at your marginal rate of tax.
Basic rate tax relief is automatically added to your contribution but higher and additional rate taxpayers can claim further relief via their selfassessment tax return. Growth in the fund is largely tax-free and, when drawing from your pension savings, the first 25% is normally free of tax.
Other tax-efficient investment opportunities do exist but many of these involve significant levels of risk and are therefore only suitable for certain people. Such opportunities include Venture Capital Trusts (VCT), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment
Schemes (SEIS). These schemes involve investment in developing businesses – hence the higher level of risk.
The Treasury sets limits on the amount that can be invested in them but, subject to those limits, they can provide favourable tax treatment for the investor.
Advice from an independent financial adviser will help you make sure that you adopt a strategy that is suitable for your specific circumstances including the income tax band into which you fall, your risk profile and your future needs and requirements.
NAny opinions expressed in this article are subject to change and are not advice. The value of an investment
and the income from it could go down as well as up.
The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The tax treatment of investments depends on individual circumstances and is subject to change. VCT, EIS and SEIS shares are likely to have higher volatility and liquidity risk than securities quoted on the Main Market of the London Stock Exchange.
Smith & Pinching and Almary Green are Chartered Financial Planners and sponsor this column. If you would like a no-cost exploratory review to discuss your retirement planning with an adviser from either Smith & Pinching or Almary Green call us today on 01603 789966 or email en[email protected]ing.co.uk.
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