Tax-friendly tools to build your fortune

ISAs

PROCEEDS from Individual Savings Accounts are tax-free (unlike a pension).

ISA contributions do not attract tax relief, unlike a pension. The exception is a Lifetime Isa where contributions (up to £4,000 a year) attract a 25 per cent bonus.

YOU can invest a maximum £20,000 a tax year in an Isa. You need to be 18 or over.

IF investments feel too risky, you can save up to £20,000 in a cash-based Isa, offered by leading banks and building societies. Innovative Isas allow you to earn income from peer-to-peer lending.

YOU are also allowed to invest or save a maximum £4,128 per tax year on behalf of a child via a Junior Isa.

CHILDREN between 16 and 18 can hold both a Junior Isa and a cash-based Isa. In effect, this is a twoyear window where £24,128 can be saved per tax year.

INVESTMENT Isas are best set up online. Contributions can be made on a regular monthly basis or ad hoc.

PENSIONS

CONTRIBUTIONS attract tax relief at the highest rate of income tax you pay. A basic rate taxpayer contributing £8,000 will receive £2,000 tax relief, increasing their overall investment to £10,000.

NON-TAXPAYERS can also get 20 per cent tax relief on contributions up to £3,600 a tax year. So, a contribution of £3,600 costs £2,880.

PENSIONS can be set up for children. Maximum annual contribution is £3,600 with tax relief at 20 per cent.

MAXIMUM annual payment into a pension is £40,000, including any employer contribution.

ADDITIONAL rate taxpayers are now restricted in how much they can contribute. Someone earning £210,000 or more can only make a maximum investment of £10,000.

MOST pensions can be accessed from age 55. In most cases, a quarter of the fund is tax-free with the rest liable to income tax.

CURRENT rules mean any amount of pension fund above £1million (the lifetime allowance) will attract a tax charge – as high as 55 per cent.

INVESTMENTS

UP to £5,000 of dividend income from shares can be received in the current tax year without any further tax being due. Over this amount, there is a tax charge of 7.5 per cent (basic rate taxpayers), 32.5 per cent (higher rate taxpayers) and 38.1 per cent (additional rate).

FROM next April, the dividend-free allowance is likely to reduce to £2,000 – a cut that will probably be confirmed in the Chancellor of the Exchequer’s Autumn Budget, scheduled for November 22.

IN the current tax year, the first £11,300 of profits made from the sale of shares is exempt from capital gains tax. Amounts above this are liable to either 10 or 20 per cent tax.