Tony Byrne’s View 19th June 2017
In spite of the inexorable rises in taxation announced by the Chancellor in each year’s Budget there still remains a surprisingly high number of ways to minimise your taxation with careful planning with your financial planner.
For starters whether you are investing money or withdrawing money from your investments there is an optimum order of precedence for maximum tax efficiency. If you are an investor you should invest money in the following order;
General Investment Accounts or GIAs
If on the other hand you wish to withdraw money from your investments the order is reversed as follows;
Investment bonds are investments which are taxed at source on the insurance companies that provided them, so they can best be described as investments that defer or eliminate any higher rate Income Tax charges.
GIAs are taxable investments against which you can use your annual Capital Gains Tax exemption of £11,300 per person.
ISAs are of course free of Income Tax and Capital Gains Tax and if they are AIM ISAs they are Inheritance Tax free after 2 year of ownership too!
Money purchase pensions are particularly interesting because such pensions are now 100% accessible but the taxation charges for withdrawing all of the money invested in them are so high very few people, if any, want to encash them in full. When you invest in a pension you get tax relief at your highest rate of Income Tax that you pay known as your marginal rate. When you withdraw money from your pension you pay Income Tax on it at your marginal rate after taking the first 25% tax free usually as a lump sum.
Did you know that you can receive investment income of up to £28,800 entirely tax free each year? That’s £57,600 per couple! This is by taking advantage of all of the allowance you are entitled to claim as follows;
Personal Allowance £11,500
Dividend Allowance £5,000
Savings Allowance £1,000
Capital Gains Tax Exemption £11,300
In addition to this you can still put sizeable amounts into both tax free and tax deferred investments each year especially pensions and ISAs. We have many clients with 6 or 7 figure sums that are totally Income Tax, Capital Gains Tax and Inheritance Tax free!
As taxation is likely to be the biggest expense you will face during your lifetime it is absolutely crucial to minimise its impact on both your income and your capital which is why we focus not only on maintaining and building your wealth but also on managing your taxes. That’s why our company’s name is Wealth And Tax Management. We do what it says on the tin!
So if you, a relative, a friend or a colleague haven’t had a tax review of your finances recently do get in touch as we would love to help you reduce your tax bill. You know it makes sense. So please feel free to forward this blog by email to people you know who may be interested in reading it.