Tax-ef­fi­cient investment­s

The UK tax regime of­fers many op­por­tu­ni­ties to be tax-ef­fi­cient with your investment­s, says Carl Lamb

EDP Norfolk - - YOUR MONEY -

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]­

ABOVE: may be a maze – but there are ways through

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